5 Best Practices to Coping with the Global Fertilizer Shortage

Sharp increases in the cost of natural gas last year, which is a key ingredient to some types of fertilizer, have added to the issue, though prices have dropped and are expected to stay low for the rest of the year.

Fertilizer accounts for 35% to 36% of farmers’ costs when growing crops. The disruptions over the last few years caused fertilizer prices to spike as much as 400% or more in 2022. Though fertilizer prices have eased, they are still at historically high levels. 

Agribusinesses are no strangers to risk and the need to manage it. The fertilizer shortages and related price volatility are just the latest issues for agribusinesses to contend with, so how can you handle this risk?

The root causes of the fertilizer shortage 

A major factor in global fertilizer shortages has been the war in Ukraine and the reduction in fertilizer exports from Ukraine, Russia and Belarus. Yet other critical events are also shaping the market. These factors include China’s decision to continue limiting its own fertilizer exports. China, the world’s largest exporter of nitrogen and phosphate fertilizers, had curtailed its exports before the onset of the Russian Ukraine war, which led to global shortages and price spikes.

In addition, high inflation and the increased cost for coal and other commodities has added to the increase in fertilizer prices. Weather conditions have also been a factor.

How to contend with the fertilizer shortage

Crop yields are likely to suffer because of the increased cost of fertilizer and the current shortage. Agribusinesses can take some of the following steps to manage risk and contend with the uncertainty as fertilizer-importing countries vie to secure this much-needed agricultural feedstock.

• Purchase forward contracts.  To minimize risks related to cost volatility in fertilizer prices, consider purchasing forward contracts on fertilizer as agribusinesses often do with futures for wheat, corn and other agricultural commodities.
• Buy early. Because this is a seller’s market, agribusinesses should try and secure fertilizer well before the growing season begins. Fertilizer prices tend to be higher on average from late March through early June.
• Obtain federal crop insurance. To further withstand the impact of a fertilizer shortage on future crop yields consider buying federal crop insurance, which is provided by the U.S. Department of Agriculture (USDA) Risk Management Agency. Federal crop insurance protects against heightened weather-related risks such as drought, freezing, wind and hail, as well as geopolitical risk.
• Know your risk tolerance. Agribusiness owners and managers need to understand how much risk they can tolerate and must limit the amount of risk the business is exposed to. Responsible parties should be able to protect 80% or more of agribusiness production through a combination of the above actions.
• Work with your insurance broker. To mitigate risks related to fertilizer availability and uncertain pricing, seek guidance from agribusiness brokers who can help you pinpoint the tools and risk management strategies to help your business survive and even thrive during challenging times.

Looking ahead, the USDA’s initiative to reduce the impacts of the fertilizer shortage may also help those in agribusiness. Last September, the USDA announced a grant program to increase the production of fertilizer within the United States. Projects that were awarded grants are anticipated to increase long-term availability of U.S.-produced fertilizer and help boost fertilizer production for the next two crop seasons.

Editor’s Note: As a Farm & Agribusiness leader at global insurance brokerage HUB International, Leif Erickson works directly with farm and business owners to help structure insurance solutions and risk management programs to protect their operations and mitigate their exposure to potential risks.  Leif was born and raised on a small dairy farm in the Blanchardville, WI area and has a true passion for helping farmers.  This background has helped Leif develop programs specific to farming and agriculture, including an exclusive Environmental Liability program.