Fertilizer International 524 Jan-Feb 2025
22 January 2025
The year ahead – fertilizer consumption to set a new record?
The year ahead – fertilizer consumption to set a new record?
We look ahead at fertilizer industry prospects for the next 12 months, including the key economic and agricultural drivers likely to shape the market during 2025.
Stable yet underwhelming growth
The IMF expects world economic growth to hold steady at 3.2 percent per annum in 2024 and 2025. The outlook for average annual growth over the next five years (2024-2029) at 3.1 percent remains at its weakest level in decades – with the IMF describing this as “a mediocre performance compared with the pre-pandemic average”.
These slightly underwhelming growth prospects were, however, counter balanced by better news on inflation. Indeed, the IMF suggest that the global economy has been unusually resilient during the recent deflationary environment.
“It looks like the global battle against inflation has largely been won,” said Pierre-Olivier Gourinchas, the IMF’s economic counsellor and director of research. “After peaking at 9.4 percent year-on-year in the third quarter of 2022, we now project headline inflation will fall to 3.5 percent by the end of next year [2025], slightly below the average during the two decades before the pandemic.”
The IMF linked the recent inflationary surge to a combination of post-pandemic supply disruptions, strong demand pressures and the sharp spike in commodity prices following the war in Ukraine. Yet with inflation now close to central bank targets in most countries, as these aftershocks have diminished, the path is now clear for monetary easing across major economies, in the IMF’s view.
Looking ahead, Gourinchas warned that a shift to damaging trade and industrial policies could lead to a significant drop in global output, relative to the IMF’s baseline forecast.
“Despite the good news on inflation, downside risks are increasing and now dominate the outlook. An escalation in regional conflicts, especially in the Middle East, could pose serious risks for commodity markets,” he said.
Ag commodities – tariff war expected
2024 has been a year of further price declines for sugar, major grains and oilseeds, Rabobank reported in its annual outlook, while tropical tree crops such as cocoa, coffee, and palm oil experienced a price upside. Consequently, grain and oilseed farmers look set to enter 2025 with narrowing margins – even negative in some cases – against an uncertain geopolitical backdrop.
In its outlook for the year ahead, Rabobank expects a tariff war to start following the change of US government in January 2025. “Many geographies, technologies, and industries” would be affected, if this were to occur, both creating and destroying “a lot of value in several countries”, in the bank’s view.
“Potential tariffs on imports from China, Mexico, Canada, and many other countries could result in farmers facing an attack on their margins,” said Rabobank. “The US imported $195bn worth of agricultural products in 2023, including alcoholic beverages, fruits and vegetables, sugar, cheeses, vegetable oils (including used cooking oil), coffee, and cocoa.”
The US was likely to make China the primary target for tariffs, said Rabobank, with used cooking oil imports potentially among the first to be affected.
“When China retaliates, the humble soybean, as the single largest agricultural purchase that China makes from the US, might once again find itself in the crosshairs. With soy prices down by 25% over the last year, US farmers might not believe their (bad) luck,” Rabobank said.
Significant shifts in agricultural trade would be one likely consequence, according to Rabobank. A new US-EU trade deal, for example, could see Europe’s soy and soymeal sourcing requirements shift away from South America to the US instead.
Rabobank’s headline ag market calls for 2025 are:
Ukrainian agricultural exports to decline.
While Ukraine will continue to ship its exportable grain surplus – barring an increase in Russian attacks on the country’s ports and grain-laden vessels in the Black Sea corridor – the country still faces major challenges, including labour shortages, adverse weather, and low stock levels, even without additional Russian aggression. Rabobank also flags up a major risk of Ukraine hitting Russian ports, these being responsible for roughly 23% of global wheat exports.
What drives fertilizer demand?
Fertilizer demand is influenced by the complex interplay of many factors – some of which are harder to predict than others. In the short-term, the main drivers of demand include:
- The macroeconomic environment, interest rates, currency exchange rates and farm economics
- Crop prices and fertilizer-to-crop price ratios
- Crop mix, growing areas and crop yields
- Soil nutrient levels and nutrient replenishment
- Policy, regulation and fertilizer subsidies
- Sustainability, nutrient management and nutrient recycling
Many of these factors vary from country-to-country and regionto-region. Adding to the complexity, these primary drivers are in turn influenced by a host of secondary considerations.
Macroeconomic conditions, by triggering slowdowns or expansions in global, regional and national growth, control overall economic demand and affect the health of agricultural markets. Farm economics and attendant issues such as working capital, interest rates, credit availability and barter ratios have a more direct impact on the cost of doing business and the ability of farmers to purchase fertilizers.
Crop prices and fertilizer-to-crop price ratios act as key controls on crop nutrient demand as they play a critical role in determining farm buying power and (alongside exchange rates) fertilizer affordability. Crop prices in turn are driven by the harvest size annually, stock levels and demand for agricultural commodities. Fertilizer industry analysts pay particularly close attention to the prices of cereals, oilseeds, cotton, sugar and palm oil, the main fertilizer-consuming crop types globally.
The biofuels market is also an important driver of fertilizer demand due to large-scale cultivation of maize and sugarcane for ethanol and oilseed rape (canola) for biodiesel (Fertilizer International 474, p22). Crop failures due to extreme weather events such as the El Niño (Fertilizer International 475, p38) and La Niña can also affect fertilizer demand in the short-term.
In its latest short term outlook, the International Fertilizer Association (IFA) also singles out three further fertilizer market drivers1 :
- Trade disruptions
- Sanctions, tariffs and protectionism
- Decarbonisation investment.
Mild La Niña due. A very short and weak La Niña event is expected in 2025 – and may be having impacts already. The significant delay in the return of rainfall in Brazil and the recent dryness in Argentina and the southern US, for example, are typical La Niña weather effects. There could be knock-on effects if the late soybean harvest in Brazil causes delays to safrinha corn planting.
Tariff introduction likely to hit global trade and growth. The global economy in 2024 has managed to combine falling inflation with moderate economic expansion. The prospect of US tariffs, however, risks splintering global trade and financial flows. The potential effects of tariffs on US dollar availability, meanwhile, places those developing nations with high dollar-debt exposure at particular risk. A strong dollar would, though, mean lower prices for all dollar-denominated commodities. In the US, the combination of trade tariffs and tax cuts is likely to push inflation higher, potentially limiting the ability of the Federal Reserve to further reduce interest rates next year.
Mixed climate change impacts on crop yields. Long-term climate change will continue to affect agricultural productivity, with differing impacts across different crops and regions. While warmer temperatures in northern regions are lengthening growing seasons – leading to higher yields – climate trends are having adverse crop production impacts in low latitude regions. Consequently, strong negative effects on corn yields are projected in future, whereas wheat yields and harvests in high-latitude regions may benefit from higher CO2 concentrations and expansions to the planting area.
Coffee and cocoa prices set to fall in 2025. Cocoa and robusta coffee prices reached all-time record highs in 2024, while arabica prices peaked at their highest level since 1977. Rabobank expects price declines for these ag commodities in the coming year, as production expands and demand declines to balance the market.
Fertilizer demand – a new high in 2025?
The International Fertilizer Association (IFA) is estimating a modest 2.3 percent rebound in global fertilizer consumption in 2024 to 201 million tonnes of nutrients (N + K2O + P2O5 ), building on the 4.3 percent recovery in 2023 and following the sharp demand contraction of the two years prior (Figure 1). This was, however, an N and K2O led recovery with P2O5 consumption unchanged year-on-year. In general, farmers benefited from better average potash and nitrogen fertilizer affordability in 2024 – against the backdrop of broadly lower crop prices – but faced more expensive phosphate product purchases, relative to 2023 averages1 .
The mixed picture on affordability in 2024 was accompanied by changes to the global crop area, with fewer hectares of maize and wheat and more hectares of rice, soybeans and oil palm being planted. The US Departments of Agriculture (USD) also reported record US corn yields in 20241 .
IFA expects the following regional trends to drive up global fertilizer consumption in 2024:
- East Asia drives the recovery through increased K2O usage by the palm oil producing countries Indonesia and Malaysia – this being linked to higher palm oil prices – as well as higher potash consumption in China
- Higher N use in both East Asia and the Eastern Europe & Central Asia region, driven by India, Russia, China, Indonesia and Ukraine in particular
- P2O5 use, meanwhile, declined in Latin America in 2024 due to lower affordability and a decline in Brazilian soybean and corn production, although a rebound in phosphate demand is expected in 2025.
Looking ahead, IFA expects the modest growth rate in global fertilizer demand to continue this year and is forecasting a 2.0 percent year-on-year rise in nutrient use in 2025. An increase by this amount (+4 million tonnes to 205 million tonnes of nutrients) would see global fertilizer consumption rise above pre-pandemic levels to set a new record (Figure 1).
Comparing 2025 to 2020, the previous record year for fertilizer consumption, IFA reports1 :
- Higher demand for N – which has proven itself the most resilient nutrient – with relatively inelastic consumption linked to supportive government policies in many countries
- Slightly higher demand for K2O driven by better affordability.
- Slightly depressed demand for P2O5 due to its lower affordability.
Fertilizer supply – adjusting to disruptions
Previously, following the start of the war in Ukraine in 2022, IFA has relied on a supply metric known as ‘capability’. This estimates actual fertilizer supply by adjusting downwards newly-announced production capacity by factoring in likely disruptions to production output in certain countries. In recent years, supply capability has needed to assess the impact of the following major events on the global fertilizer market (Fertilizer International 518, p12):
- The trajectory of Russia’s war in Ukraine
- International sanctions placed on Russia and Belarus
WHAT ARE FARMERS THINKING?
In its latest Farmers Insights Survey, now in its fifth year, McKinsey questioned around 4,400 farmers across nine countries between January-March 2024. Farmers reported five key things:
1. Increased input prices remain a top risk
Despite recent price declines, growers still believe that increases to input costs are the top risk to their profits – with extreme weather now a close second. Indeed, extreme weather and climate are the top risks for Latin American and European growers. Overall, farmers are increasingly concerned about the collective risks to their businesses from extreme weather events, commodity prices and worker shortages.
2. Practices driving input efficiency are up
One highly encouraging survey finding is that practices such as variable rate fertilization and the use of biologicals, controlled-release fertilizers and stabilised fertilizers are on the rise, being driven by a desire to improve yields and reduce production costs. The top three reasons behind the adoption of these sustainable practices were highly commercial too: yield benefits, lower production costs and the generation of additional revenues.
3. More than one-third of farmers use biologicals
McKinsey found that the adoption rate for biologicals among growers globally is above one-third currently and rising. Some 90 percent of farmers expect to maintain or increase their spending on biological products such as biostimulants. What’s more, buying behaviour is largely independent of fertilizer price hikes, with almost two-thirds of growers saying will either maintain or increase their expenditure on biologicals, regardless of changes in crop protection and fertilizer prices.
4. Technology adoption rises
Nearly half of growers around the world are using technology in their operations, with adoption on the up. In this year’s survey, McKinsey has seen a roughly one-fifth increase in the percentage of growers adopting or willing to adopt technology. This is especially true where farm tech has an operational focus – such as variable rate fertilization.
5. Input distributors are soil health influencers
Farmers globally cited their input providers as key influencers when looking for recommendations on soil health, with these even being ranked as the top advisors in North America and Europe. Growers identify soil health as an increasingly important topic, McKinsey found, with input distributors consistently ranked as the key advisors on this topic.
One key takeaway from the 2024 survey was the way in which farmers are innovating in response to increasing weather and climate risks. McKinsey expects to see greater adoption of new practices and novel products in future, biologicals being one example, with a specific focus on improving soil health. n
References
- The logistical ability of both Russia and Belarus to export fertilizers
- The introduction of protectionist policies curbing exports from key fertilizer exporting countries such as China.
Although IFA’s has partly returned to using a traditional capacity metric in its latest short-term forecast, China’s imposition of export limits on urea and finished phosphates has continued to be a disruptive theme in 2024. Houthi rebel attacks, first reported on last year (Fertilizer International 518, p12), have also raised fertilizer shipping costs and increased transit times by diverting shipments away from the Suez canal to the longer Cape of Good Hope route1 .
IFA is currently forecasting the following fertilizer supply changes for the two years 2024-20251 :
- A four percent increase in nitrogen capacity (ammonia) from 192 million tonnes to 201 million tonnes N – driven by new capacity in China and low-cost projects in the US, Russia, Mexico and Iran.
- An increase in phosphate capacity of just one percent from 64.3 million tonnes to 65.1 million tonnes P2O5 – with only a few small-scale phosphoric acid plants commissioning in India, China, Brazil and Morocco over this two-year period.
- A four percent increase in potash capacity from 64.0 million tonnes to 66.6 million tonnes K2O – based on the expansion of existing production capacity in Canada and Russia and the ramp-up of new projects in Laos.
In terms of individual commodities, IFA makes the following global production and trade estimates for 2024 versus 2023:
- Urea: Increased production (+2.1%) to 200 million tonnes and a fall in trade (-0.5%) to 55 million tonnes.
- Monoammonium phosphate and diammonium phosphate (DAP/MAP): Increased production (+3.6%) to 67 million tonnes and a fall in trade (-2.6%) to 28 million tonnes.
- Muriate of potash (MOP): Higher production (+5.1%) to 73 million tonnes and an increase in trade (+5.6%) to 58 million tonnes.
Summing up
The key takeaways in IFA’s short-term outlook are as follows1 :
- Major trends: the global economy has remained resilient despite mounting risks to growth; the cost of borrowing is high, but so is market confidence; agricultural and fertilizer markets remain politically exposed; progress on decarbonisation is uncertain and complex.
- Fertilizer demand: agricultural consumption is recovering, but has diverged for individual nutrients; K demand is leading the way, N demand is resilient, while P demand lags behind; Asian markets are driving the demand recovery with this underpinned by government support.
- Supply and trade: fertilizer capacity improvements are relatively solid amid lower incentives to invest; China has changed its market role by prioritising domestic demand over fertilizer exports; the global fertilizer market continues to adjust to disruptions to both shipping and trading partnerships.
CRU in its top fertilizer calls for 2025 (page 4, Figure 2 opposite) predicted:
- No additional duties on Russian exports into Europe
- Chinese ammonium sulphate to continue to flood the market
- Trump tariffs to take a delayed bite out of US fertilizer demand
- China to eventually lower urea export barriers in the year’s second half
- High phosphate pricing to spur investment
- More consolidation of nitrogen production in Europe with further plant closures
- China to ramp up its international potash investments in Laos and elsewhere
- Blue ammonia to continue advancing while progress on green ammonia falters (outside China).
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