Belarus' inability to ship potash through trade-isolated Russia is leading to a worse-than-expected supply crunch of the fertilizer.
Analysts believed Belarus, which along with Russia supplies 37% of global potash, would ship some of its product through Russia after Lithuania barred the landlocked country from using the port of Klaipeda as of Feb. 1. But Russia's ports are tough to access due to economic sanctions aimed at punishing the country for its Feb. 24 invasion of Ukraine, and now it appears Belarusian potash is simply not getting to market. Meanwhile, as potash prices continue to soar, there are concerns on the demand side that farmers may balk at fertilizer purchases, sacrificing crop yield in an attempt to protect margins.
It appears that Belarus' potash mines, underground operations like the proposed Jansen potash project pictured here, have ground to a halt.
Source: BHP Group
"Globally speaking, we think we're looking at a cut in total shipments of more than 10% this year over 2021 ... something in the range of more than eight million tonnes," CRU fertilizer analyst Humphrey Knight said.
Without access to Russian or Lithuanian ports, Belarus is limited to overland shipping. JSC Belaruskali, Belarus' state-owned potash miner, could not be reached for comment.
"We are aware of some small rail cargoes going into Russia and on to China, possibly, but they are very limited in nature," Knight said, pointing to shipping logistics and banking as the main issues. "The restrictions on Belarus are extremely severe."
Demand destruction
On the back of stiffening market turmoil, potash prices surged and have remained in record territory, raising questions over how customers, chiefly farmers, will respond both to more expensive inputs and lack of supply.
"Potash demand is slowing from [Southeast] Asia (particularly in Indonesia) to the U.S. Midwest," Scotiabank analyst Ben Isaacson said in an April 4 note.
But some analysts say surging crop prices will help protect farming profits from increasing input costs.
"Therefore, we do not believe that demand destruction is likely in the near term," said Canaccord Genuity Capital Markets analyst James Bullen in an April 4 note. Bullen also pointed to falling exports of Ukrainian wheat, seed oils and corn as supportive of crop prices.
Still, CRU's Knight noted that while crop prices are up, fertilizer prices have climbed even more over the past year or so.
"It's not terrible, but it's not as good as it was," Knight said, referring to the relative increases of crop and fertilizer prices.
While a cost-benefit analysis of applying fertilizers to boost yield plays a central role in decision-making by farmers, it is not the only consideration, said Aaron Smith, the DeLoach Professor of Agricultural Economics at the University of California, Davis.
"I think risk aversion plays an important role here," Smith said in an interview. "Farmers worry about not applying enough fertilizer and then not getting the yields."
Likewise, there could be some softness in potash demand this year because buying was strong in 2021.
"A lot of downstream markets purchased extremely heavily last year, which diminishes their need to buy as much this year," Knight said.
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