Russian actions hit fertilizer prices, availability

Even before Russia invaded Ukraine, United States farmers were affected by shortages and price spikes of most types of fertilizer. The invasion has raised questions about further availability and price shocks for farmers in the U.S. and around the world.

Anticipating the effects, fertilizer prices immediately spiked. Russia is the world’s largest exporter of most fertilizer types, and the second-largest exports of potash after Canada. Russia had already imposed export controls on ammonium nitrate late last year, causing delays and some shortages.

Ukraine also exports fertilizer and is a major wheat exporter. However, Argus Media reported that as of Feb. 23, no sanction imposed by the U.S., United Kingdom or European Union governments have targeted Russian commodity exports or had “significant impact” on the fertilizer industry.

Apart from sanctions, reports of third-party ships being hit by stray missiles in the Black Sea conflict zone may keep vessels away from loading ports.

Asked whether the latest fertilizer price shock could move more U.S. acres from corn into soybeans, Darren Hudson, director of the International Center for Agricultural Competitiveness at Texas Tech University, said, “We have already been seeing some of that movement. The question is how many of those decisions were already locked in.”

Urea fertilizer has spiked to $700 per ton. Hudson said he had recently spoken to a west Texas farmer who told him his fertilizer inputs were 40% higher than last year’s, which were already higher than the year before.

According to the Organization for Economic Development, in 2019 Russia exported $8.85 billion worth of fertilizers. The main destinations were Brazil ($1.89 billion worth), China ($843 million), U.S. ($813 million), Estonia ($591 million), and Finland ($348 million).

SWIFT uncertainties

European Union and Western leaders have agreed to begin cutting Russian banks off from the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, a secure Belgium-based platform that allows the world’s banks to communicate swiftly about money transfers. Russia’s ability to export goods could be severely reduced. At this writing, oil and gas transactions are exempted from the SWIFT bans. Russia is a major producer and exporter of natural gas, a feedstock for nitrogen fertilizer. Swiss President Ignazio Cassis said on Feb. 27 that it was "very probable" that neutral Switzerland would follow the EU in sanctioning Russia and freezing Russian assets in its banks, according to Reuters.

The SWIFT system connects 11,000 banks in 200 countries and territories and sends more than 40 million messages a day. It is jointly owned by more than 2,000 banks and financial institutions and overseen by the National Bank of Belgium, in partnership with central banks around the world, including the U.S. Federal Reserve and the Bank of England.

The system doesn’t transfer the money directly but allows banks to send messages quickly about how transfers are to be handled and into which accounts they should go. China and Russia have both developed their own substitute bank messaging systems. SWIFT is widely used in commodity sales.

It is still unclear exactly which Russian banks were targeted to be cut off from SWIFT so far. The SWIFT sanctions will hurt some western banks; Germany has warned that SWIFT sanctions against Russia would have a “massive” impact on German banks as well. The Russian central bank has not yet been shut out from the SWIFT system, but that may be a matter of time as western leaders seem united.

How long can Russia hold out?

How long can Russia withstand sanctions that are already having a crippling effect on its economy? Few analysts think the sanctions alone will have an immediate deterrent effect. After sanctions imposed by western nations in 2014 in the wake of Russia’s invasion and annexation of the Crimea, Russian President Vladimir Putin built up Russia’s foreign currency reserves to $630 billion, the world’s fourth largest.

But an unnamed Biden administration official, in a conference call with media representatives, said the sanctions would restrict Russia’s ability to use its reserves even internally to support its currency and fund its operations, according to CNN.

Western officials have promised to personally target individual oligarchs in Putin’s inner circle, including their overseas properties.

David Murray can be reached at [email protected].