Agri-commodity markets have not priced in fertilizer supply risks, say analysts

Agri-commodity markets have not fully priced in the risks caused by concerns over the rise in fertilizer prices, while farmers in developing nations, besides China, face pronounced risks, say analysts. 

“The key concern (of not fully pricing the risks) is that higher fertilizer prices will reduce usage, which could weigh on crop yields and tighten agricultural supply over time,” said Thijs Geijer, senior sector economist, food and agri of ING Think, and Warren Patterson, head of commodities strategy at ING Think, the economic and financial analysis wing of Dutch multinational financial services firm ING.

Farmers in developing countries are generally more sensitive to prices, while farmers in developed economies (including the EU) tend to have more options to mitigate the risks, the duo said.

The disruption to fertilizer markets has been exacerbated by the implementation of export quotas and restrictions by other major exporters, including Russia and China, they said. 

“That further exposes vulnerabilities in key importing regions like Australia, Brazil, India and the EU,” the ING strategists said. 

“Higher energy prices may increase fertilizer costs and reduce fertilizer application rates, potentially lowering crop yields and production,” said the Agricultural Marketing Information System (AMIS) of UN’s Food and Agriculture Organisation (FAO). 

“In our view, of the major agricultural markets, India faces the most imminent risk. China, which depends on sulphur imports from the region for phosphate fertilizer production, faces pronounced risks, though these remain manageable,” said research agency BMI, a unit of Fitch Solutions.

BMI does not expect a rise in fertilizer application in Asia as farm profitability remains pressured. Overall, “still-high” input costs will restrict farm production and fertilizer use, it said.

Despite concerns, the Indian government is confident of meeting the demand for kharif crops during July-September. India has covered 43 per cent of its fertilizer demand for the kharif season and expects domestic production to bridge the gap. 

AMIS said the fertilizer market showed signs of easing in June on improved flows through the Strait of Hormuz and energy prices softened. “While fertilizer affordability has improved in some regions, it remains a constraint in others,” it said.

However, Indian cereal production would decline by 2 per cent in 2026, while in Thailand it would decline by 3 per cent in 2026 and 2 per cent in 2027. “These reductions reflect lower fertilizer application in response to higher input costs,” said the FAO arm. 

BMI said per the latest World Bank Commodity Prices, fertilizer prices eased 4.6 per cent in June overall. “Looking specifically at urea, prices eased, but remained elevated,” it said.

AMIS said in June, fertilizer cost indicators declined across most crops and locations, apart from rice production in China. Nitrogen prices declined as supply rebounded and subdued demand outside India. 

 Geijer and Patterson said the current geopolitical conditions are clearly negative for commodity markets. “However, fundamentals such as supply, demand, stocks and broader economic factors remain more favourable, according to the International Food Policy Research Institute (IFPRI). This helps to limit the likelihood of immediate price spikes compared with previous shocks in 2007, 2010 and 2020,” they said.

A number of agri commodities heading into the 2026-27 marketing year are well supplied following strong output in 2025-26 amid record yields. This has left inventories at comfortable levels, helping to ease supply concerns, the ING strategists said.

The expectation for 2026-27 has been that while markets are expected to tighten (with yields falling back from record levels), they are likely to remain comfortable, suggesting only moderate strength in prices this year, said Geijer and Patterson.

AMIS said the ultimate impact of the West Asian crisis on agricultural markets ...