Brazil Farmers Caught in Wrong-Way Bet on Fertilizers as War Drives Up Prices
Brazil Farmers Caught in Wrong-Way Bet on Fertilizers as War Drives Up Prices
(Bloomberg) -- Many Brazilian farmers have been caught off guard by soaring fertilizer prices following Russia’s attack on Ukraine, leaving them stuck paying more for nutrients to support their plantings later this year.
Only 28% of Brazil’s fertilizer needs for the second half of this year were bought in February, according to a StoneX survey of growers representing about 40% of the nation’s total grains output. That’s down from 43% a year ago. Few deals have closed since Russia invaded Ukraine on Feb. 24.
“The window for fertilizer purchases is getting squeezed and farmers are struggling on higher prices and supply uncertainties,” StoneX analyst Luigi Bezzon said in a phone interview from Campinas, Brazil.
Brazil is an agricultural powerhouse and also the world’s biggest fertilizer importer, so any impacts on fertilizer markets can affect the South American nation with consequences resonating beyond its borders. Given the escalating prices and supply shortages, it’s unlikely farmers will be able to match the same fertilizer use of prior seasons, which could translate into lower yields when the world is facing global food inflation.
The main concern is on soybean plantings starting in September. Orders must be made as late as July to ensure a suitable time for transportation, according to Bezzon. Russia and neighboring Belarus are among the world’s top fertilizer suppliers.
“It’s unlikely that Brazil will be able to repeat the same fertilizer use seen in the past season,” he said. “Incentives for fertilizer use are lower now.”
Farmers usually buy crop nutrients months before plantings in barter trading, locking in costs. But prices surged last year due to high energy costs, China’s export restrictions and sanctions against Belarus, a major fertilizer exporter, leading farmers to postpone purchases. Some took advantage of price reductions between December and mid-February, though others betting on further declines were surprised by the Ukraine invasion that sent prices to fresh highs.
“I was lucky to have bought my fertilizers a week before the war started,” said Ricardo Arioli, a soybean farmer at Campo Novo do Parecis in Mato Grosso. “Acquiring them at current prices is almost impossible.”
Since the start of March, the relationship between fertilizer prices and soybeans for delivery next year has been deteriorating: farmers need to sell more production to buy crop inputs. As of Friday, a grower needed to sell 25 bags of soybeans to buy a ton of potash, up from 20 bags in mid February, according to StoneX. To buy a ton of the popular nitrogen fertilizer urea, a farmer needs 45 bags of soybeans -- up from 30 bags a month earlier.
Soaring fertilizer prices are the main driver for a 60% increase in farming costs for February in Mato Grosso, Brazil’s largest producing state, according to a non-profit agricultural institute known as Imea. The figure doesn’t incorporate the latest price increases on diesel and crop nutrients.
Imea manager Cleiton Gauer sees 2022 as “a year of shrinking margins” as rising costs lead farmers to consider reducing applications in the next soybean crop and taking advantage of fertilizer residues in soil.
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