Thursday, 26 May 2022

Global factors put supply and pricing under strain


Along with much of the rest of the world, we are facing serious uncertainty due to both Covid and Russia’s invasion of Ukraine.

These two disruptive international events have sparked wider ranging challenges including spiralling energy prices, China imposing export controls, food security crises in several countries and fluctuating demand for fertiliser.

Although fertiliser costs have risen substantially in the past year, global food prices have also passed long term high levels. Therefore while farmers will be revising input budgets, increased returns indicate the prospect of their fertiliser demand remaining firm.

In the face of this uncertainty Ravensdown’s supply chain has adapted quickly, pre-empting the more serious effects. Covid has disrupted shipping across the board. Compared to pre-pandemic, freight costs to bring raw materials and imported finished fertiliser products to New Zealand are up massively, between 250 and 500 per cent on 2019 rates. More recently, on top of the longer term trade sanctions on Iran, sanctions on Belarus for the past nine months and on Russia since late February have significantly reduced availability of these commodities, further increasing costs. Meanwhile China, also a major source of many of our fertiliser materials and products, is in its most disruptive Covid wave, creating enormous logistical and export approval challenges for the Chinese suppliers we deal with. Compounding the situation yet further, due to Russia’s aggression in Ukraine, global energy prices are rising: up by as much as 400 per cent in Europe, doubling in the United States, and increasing substantially elsewhere.

In terms of sanctions alone, removing Belarus, Iran and Russia has reduced the global supply of potash by 40 per cent, of ammonia by 25 per cent, of NPK by 25 per cent, and of urea by 20 per cent: heavily constrained supply forcing up costs for the most critical fertiliser commodities.

We are always conscious of these risks and have plans in place to mitigate them when they occur.

Ravensdown’s business is based on long term relationships with people we trust. Our partners are extremely professional, have good Covid protocols and control their own supply chains. These relationships ensure we can meet loyal customers’ normal purchasing requirements.

Mitigating the negative consequences around international freight and logistics, our bulk shipping joint venture, established in 2011, has paid highly satisfactory dividends, both financially and to support supply security. We have also established a relatively strong stock position, enabling us to hold prices and protect our customers, at least for the worst of this complex and challenging cycle.

Where to through winter and spring is difficult to gauge. In spite of high global food prices, as farmers balance risk against reward, a reduction in fertiliser demand may transpire. Some supply increases are likely: India’s trading relationship with Russia means it will probably recommence importing Russian urea. That could be beneficial: with India taking almost a quarter of global demand, if that happens the global urea price would likely reduce. China re-entering the market would also support a price correction. In any event, Ravensdown is confidently positioned to meet the projected spring requirements of our customers.

As a co-operative company we want to continue to support our loyal customers by providing them with the nutrients they need when they need them. We are the link between your paddock and the overseas source of the nutrients you require to optimise growth.

Gauging demand as accurately as possible is critical for our mutual success, never more so than now. We want to continue to make best use of the advantages we currently have from supplier relationships, shipping and production, which have enabled us to manage the challenges we presently face. Please stay in regular communication with your Ravensdown Agri Manager through the coming months so that we can do that.