Fertilizer markets face revived risks as the energy crunch in Europe has led many producers to curb output. Fertilizer prices responded immediately, with many price quotations showing notable increases after declining during the summer months from the record highs reached in April.

Nitrogen fertilizers are particularly affected as their production requires massive amounts of energy. Driven by geopolitical tensions and sanctions the price of natural gas in Europe surged and many fertilizer producers now find it unprofitable to keep production lines open. Indeed, about 70 percent of Europe's production capacity is currently reported to be idled.

Benchmark prices of main fertilizer types are all pointing upwards, with significant price hikes in the last week of August. Ammonium nitrate, for example, increased by 9 percent to EUR 960 per tonne, while calcium ammonium nitrate increased by 13 percent to EUR 850 per tonne. Such a pick-up in European prices is likely to spill over globally as Europeans are expected to turn from net exporters to net importers of fertilizers, thus bringing additional demand to international markets.

Apart from reduced fertilizer availability, the upward price trajectory for fertilizers is also supported by trade policy measures and disruptions. China, one of the world's leading exporters of di-ammonium phosphate and urea, has curbed its international shipments since October 2021 by introducing additional inspection requirements for fertilizer exports. Not surprisingly, therefore, the country’s fertilizer exports between January and May 2022 tumbled to the lowest level in four years. In addition, fertilizer supplies from the Russian Federation and Belarus, which are both leading exporters of nitrogen and mineral fertilizers, continue to be limited as a result of international sanctions. While shipments are not completely blocked (e.g. Brazil and India recently purchased Russian fertilizers by implementing payment systems that can circumvent banking sanctions) export flows remain subdued as private shippers, banks, and insurers need to price in the sanctions as additional risks.

For grain producers, rising fertilizer costs will squeeze profit margins and could ultimately limit production. Such higher production risks would add upward tensions on food prices and contribute to food security concerns.