A crisis is brewing in fertilizer prices and availability.
According to the head of one fertilizer company, this is likely to result in higher grain prices.
Itafos has operations in many countries but its flagship operation is its Conda facility in Idaho that produces monoammonium phosphate and other products.
When the U.S. and Israel attacked Iran, David Delaney, the CEO of Itafos moved to amend the company’s sulfuric acid contract with the mining company Rio Tinto to assure price and supply.
Sulfuric acid, is needed to turn phosphate rock into phosphate fertilizer. Sulfuric acid comes from sulfur and about 45 per cent of sulfur normally comes through the Strait of Hormuz. In addition, Russia has stopped exporting sulfur.
Delaney, formerly the chief operating officer of PotashCorp, doesn’t expect a quick resolution to the Middle East situation.
"So the quicker the war can end, we get the straight back open and get some normalcy to it. But I think that could take through year end, basically, because I don't see it opening anytime soon. It feels like it's got a month or two to go before this is, I think, maybe some kind of compromise is made. And then again, it takes a month or two to unplug it." he said. "And then what ship owner wants to go back in there? What's the insurance rate to go back in there? What's the capability back in there? If you look at all these plants, just think about all the parts that will need to be made or fabricated and ordered and then delivered and then rebuilt. All these things are up in the air. Just nobody knows."
Delaney believes crop yields will be reduced in many nations due to a lack of fertilizer availability. He has heard that up to 40 percent of Brazilian acreage may not get any phosphate this year. Seeded acreage may drop in some countries. As grain stockpiles drop, prices should increase.
"And I think another point you need to think about is I think people are going to increase their biofuel mandates. And I think it was Indonesia had indicated they may go to E50. And we're talking about E15 here year-round. And I think you're going to see more of that. So countries aren't as dependent upon oil and oil products. I think countries are going to be thinking about, do I export as much as much of my grain and oil seeds as I historically have, or do I keep some of that as a safety stock and something like this ever happens again? So then do they become bigger importers of grains and oil seeds? So I just think the S&Ds and how people think about grains by country are going to change, which could end up creating traded demand for grains, more country at risk by keeping grains at home for safety stocks, more biofuels, and then you got on less fertilizer, globally available, it's got to likely mean, lower yield. So it's a really combination of a lot of things that are that are going on and being talked about." he explained.
While Delaney believes fertilizer prices will remain inflated for the foreseeable future, he thinks availability could also become an issue for some products in North America.
Below is the full interview with David Delaney.
