Fertilizer markets and their interplay with commodity and food prices

摘要

This study analyses the drivers behind the recent price evolution of fertilizers and their interplay with energy and food commodity market prices. First, evidence of speculative behaviour on fertilizer markets is found. However, speculation on derivative markets can hardly be considered as the cause. The recent rapid expansion of this new derivative market might be due to the growing volatility of international fertilizer prices, especially urea, and it is probable that most of the fertilizer derivative products may be used as hedging tools and not as speculative ones. Indeed, the peak in fertilizer prices first occurred on the physical market due to the uncertainty of the grain and fertilizer markets (high volatility). Second, the prices of food commodities have influenced the fertilizer market and not vice versa. The results show that there is substantial co-movement between fertilizers' and food prices, but that the food prices are among the causes of the fertilizer price movements. Higher food prices induced a higher demand for fertilizers, again boosting prices to higher levels. Third, the energy sector triggered the increase in fertilizer prices through the input cost channel. Energy represents a key input in the production of fertilizers. Rising oil and natural gas prices provoked a spark for the nitrogen nutrients whose production depends heavily on energy inputs for production and transport. The same occurred to phosphate and potash, where energy input is less important in their respective production cost structures. Fourth, given the oligopolistic fertilizer supply chain and the inelasticity of the supply of fertilizers (there is a 5 to 10 year delay before new production plants can be put into the supply chain), this created an upward adjustment of the expectations in the fertilizer market causing an upward spiral effect of the price. This eventually might have provoked a price peak in 2007 due to the uncertainty surrounding the low levels of global fertilizer stocks (nitrogen and phosphate). Over the previous 15 years, the excess nitrogen supply has nearly vanished while phosphate and potash have remained at marginal levels, meaning that no buffer could protect the market when an adverse shock occurred in 2007. Fifth, the volatility of energy, food and fertilizer prices move closely together in an environment of rising energy prices. In the opposite scenario, food and fertilizer volatility do not move together with the volatility of energy prices in an environment of decreasing energy prices. Consistent with other studies, the volatility of fertilizer, energy and food prices was lower during the commodity price peak of 2007/08 than during the 1973/74 oil price shock