CRU: COVID-19 And Fertilizers: Five Things To Know

Covid 19 and fertilizers

The COVID-19 pandemic has widespread implications for commodity markets, and fertilizers are no exception.

The agricultural sector has been caught between conflicting drivers – the essential nature of food production, the need to contain the spread of the pandemic, volatile foreign exchange rates and the impact of macroeconomic uncertainty on food and biofuels demand. This has ultimately trickled down to fertilizer production cost economics and demand drivers.

Fertilizer demand has proved resilient in the face of prior economic shocks, but the industry is not immune to a collapse in the financial system. There are numerous downside risks to be aware of in the face of increased uncertainty brought about by the COVID-19 pandemic.

In addition to our regular analysis covering the latest market trends and implications for the future, we have been evaluating the impact of COVID-19 on the fertilizer markets. This insight summarises some of our recent analysis on the situation, and the unique ways in which fertilizers have been hit by the global pandemic.

In such a rapidly developing and uncertain situation, the CRU fertilizer team is constantly reviewing the impacts of COVID-19 on the fertilizer market.

1. Fertilizers are sheltered from near-term economic turbulence, but not immune to recession risks

Most governments have now classified fertilizers as essential goods, allowing deliveries to farmers to continue despite extensive lockdowns throughout the world. There are several transmission mechanisms through which COVID-19 could impact fertilizer markets, and fertilizer demand specifically. People must eat regardless of whether the economy is in an up or down cycle, but the prospect of slower economic growth and the threat of a prolonged global recession can impact fertilizer demand in other ways.

We have also considered the impact of COVID-19 disruptions on producer financial performance in 2020 and what these companies should be watching out for in the year ahead. The economic backdrop for fertilizer producers is increasingly complex. The upside of an already weak fertilizer price environment is better affordability for farmers, which coupled with strong crop acreage expectations for 2020 puts demand fundamentals in a robust position for the year ahead across the nutrients.