ENDERBY – War in the Middle East has delivered a generational shock to energy prices, meaning BC farmers can expect a prolonged period of higher costs, not just for fuel but also for fertilizer.
Western North America’s nitrogen fertilizers are mostly locally produced, but Okanagan Fertilizer Ltd. president and CEO Ken Clancy says various factors have complicated the outlook.
“They were already predicting shortages in Western Canada and the Pacific Northwest before this all happened,” he says. “Since December-January, the price of nitrogen fertilizer in particular has been going up a lot, and this whole situation with the war breaking out in Iran has exacerbated that.”
Clancy says farmers and, in turn, local suppliers scaled back fertilizer purchases last summer due to the outlook for commodity prices.
“Companies like us weren’t buying like they normally did. There was a lot of fertilizer that simply wasn’t placed for the upcoming season like it normally would be,” he says.
This resulted in lower nitrogen imports into Western Canada, where stocks had reached a record high of more than 300,000 tonnes last fall. But as the outlook for grain prices improved, buyers rushed in, and fertilizer prices began rising.
Some manufacturers now believe the market could be short hundreds of thousands of tonnes as demand collides with strained supplies.
Clancy is optimistic on supplies, but dour on pricing.
“I’m confident that we’re going to get the tonnes we need to get through the season, but there will be some logistics challenges and price challenges,” he says. “In Western Canada, the only way [we’re] going to see adequate supply is prices going up so imports will be attracted into the market.”
Statistics Canada reports that nitrogen-based fertilizer prices soared with Russia’s invasion of Ukraine in February 2022, more than doubling in BC before falling in 2023. But prices never dropped back to previous levels and began rising again last summer. By September, they were about 60% above pre-pandemic levels.
While the Middle East produces just 12% of the global supply of nitrogen fertilizer, approximately 22% of product flowing to global markets passes through the Strait of Hormuz. But few vessels are willing to make the passage these days.
Oil prices surge
While fuel prices have been relatively stable since 2022, that’s ending. The International Energy Agency, originally formed to address the 1973-74 oil crisis, has called the Strait of Hormuz’s closure “the largest supply disruption in the history of the global oil market.”
Oil surged past US$100 a barrel in the first week of the conflict, and hit US$112 by mid March. Retail prices for diesel followed suit, hitting $2.35 a litre in Abbotsford versus $1.65 a month earlier.
Natural gas is also affected, with Iran’s March 18 attack on Qatar’s Ras Laffan LNG facility reducing its export capacity by 17% for three to five years.
Higher input costs will squeeze producer margins unless they’re able to pass along the increases. This is what happened in 2022, when an overall surge in inflation permitted some price-taking.
However, an analysis by Farm Credit Canada on March 9 indicates that the outlook is anything but certain.
“Unlike 2022, when rising input costs were offset by strong commodity prices, 2026 is shaping up very differently,” FCC says. “Unless the war is resolved quickly, expect global fertilizer supplies to tighten further and put additional pressure on global food production and prices.”
The BC Agriculture Council says it’s closely monitoring the situation.
“[BCAC] is prepared to advocate for relief measures should we begin to see sustained impacts on production costs in the province,” says BCAC executive director Danielle Synotte. “More broadly, this underscores the need for all levels of government to … help alleviate rising production costs – particularly here in BC, where affordability challenges are already at an all-time high.”
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