Last year, the COVID-19 situation marked the bottom of what had been a nine-year dip in prices and profits of the fertilizer industry. However, remarkably, the industry has witnessed an astonishing turnaround this year. An expansive monetary policy from the government to suit the needs of credit-hungry farmers, a government push for food security, and an increased consumer demand for edible goods are the primary causes for the rapid revival of the industry.
Overview Of The Industry
To understand the transformation of the market, we have to look at what constitutes the sector. The generic term “fertilizer industry” refers to three different crop-yield-enriching elements: nitrogen, phosphorus, potassium, or “NPK.” Nitrogen compounds, especially urea, have the highest volume share and are the most frequently applied fertilizers, followed by phosphorus as phosphates and lastly, potassium in the form of potash. Fertilizer manufacturers usually focus on one of these three nutrients, or sometimes all three. The fertilizer industry ultimately profits from the buoyant N-P-K prices. Rising crop prices, changes in input costs (e.g., natural gas prices), and currency factors influence NPK prices and are important metrics for the industry. Notably, one of the reasons for the recent turnaround is said to be the falling dollar prices. When the price of the dollar falls, commodity price strength increases, and the industry, including chemical supply companies and chemical distributors, is greatly benefited from the enhanced export potential.
Reasons Behind The Peak
The COVID-19 pandemic is a crucial reason for the turnaround. Governments in the country immediately took to action by imposing various restrictions in mobility and lockdowns to contain the spread of the pandemic. This understandably caused a noticeable amount of consumer panic, who were seen to be flooding the supermarkets and buying as many edible goods as possible. Higher demand for fertilizers by farmers looking to ramp up production followed, driving up the fertilizer prices. Notably, nitrogen-based fertilizers, which are essential for cereal production, have increased consumption in the past few quarters. Over and above the domestic demand, experts say that the US is anticipated to become a globally significant exporter of nitrogen products in the coming years. This has made the fertilizer industry incredibly lucrative in the eyes of investors.
The rising income of farmers is another important cause for the increased demand. There is a general trend towards increased subsidies, which has boosted the incomes of the farmers everywhere in the country in high consumer demands. The farmers use the increased income to invest in fertilizer applications, which translates to increased fertilizer prices. Furthermore, the return of the weather phenomenon La Niña is also cited by many as a factor. The phenomenon causes a more severe hurricane season and an above-average rainfall in North America. Even though rainfall distribution is unequal, with some regions witnessing increased rainfall than others, the changed weather pattern overall seems to have boosted fertilizer demand and prices.
Thus, it is evident that it is a combination of favorable trends in the consumer side and the supply side that has resulted in a rapid revival in the industry's profits in the past year. The upward trend is expected to continue in the coming years, as the post-pandemic economic forecasts predict the continuation of circumstances beneficial to the fertilizer industry.