"The plummeting cost of raw materials, growing production capacity and mediocre demand have kept the global prices of nitrogen (urea), as well as phosphate and potash down. A key contributor to this is lower energy costs, with the fall in fuel demand during Covid-19 lockdowns leading to natural gas prices falling by 46 per cent (UK NG ICE) and coal by 11 per cent (ZCE Thermal Coal)," Mr Lefroy said.
"Global prices are a key driver of local prices and consequently local prices are now at affordable levels. We expect global fertiliser prices will remain near 10-year lows in US dollar terms over coming months, however, we’re also forecasting the New Zealand dollar to fall from USc 65 to USc 62 by the spring, and this may lead to an upwards trend in local prices."
Strong rise in New Zealand urea imports
The report says global fertiliser supply chains continue to produce and move product despite an elevated risk of Covid-19 related interruption.
Mr Lefroy said New Zealand imports of urea rose strongly during the second quarter after a quieter start to the year despite the extra pressure Covid-19 has placed on global supply chains.
"Following lower urea imports in the first two months of the year, New Zealand importers landed 68,675 metric tonnes of urea in March, according to data from the Commodities Research Unit (CRU). This is almost double March 2019 imports and the highest March imports in the last four years," he said.
"Between 75 per cent and 85 per cent of New Zealand’s urea imports are sourced from Saudi Arabia, Malaysia and China. And, while New Zealand does rely heavily on these countries for urea, fortunately there are sufficient alternatives if there was a supply interruption in one of these sources."
Fresh water reform caps nitrogen use from mid-2021
The report says under the government’s recently-released freshwater reforms, synthetic nitrogen use would be capped from mid-next year.
"Nitrogen use will be capped at 190kg (nutrient weight) of nitrogen per hectare per year for dairy farmers and applies to all manufactured synthetic fertiliser brought into the farm," Mr Lefroy said.
"From July 2021, all dairy farmers will need to record the tonnage of nitrogen applied and area applied to, with this information then submitted to the local regional council on a yearly basis."
Rabobank New Zealand is a part of the global Rabobank Group, the world’s leading specialist in food and agribusiness banking. Rabobank has nearly 120 years’ experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank is structured as a cooperative and operates in 40 countries, servicing the needs of about 8.6 million clients worldwide through a network of close to 1000 offices and branches. Rabobank New Zealand is one of the country's leading agricultural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 32 branches throughout New Zealand.
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