The logistics of fertilizer production in today’s world

Much of eastern Canada’s fertilizer is delivered by ship from various locations around the world. This scene shows a ship being unloaded into a truck as part of Sollio’s logistics chain.

By Jeff Helsdon

Attendees at the Grain Farmers of Ontario District 5 (Elgin/Norfolk) received insight into the latest on the fertilizer market from the head of the country’s largest farm co-operative.

For Casper Kaastra, executive vice-president and CEO of Sollio Agriculture, speaking at Malahide Community Centre in Springfield had a sense of familiarity as he grew up on a dairy farm in nearby Lyons. He worked in various positions for a variety of companies, including Cargill, before landing at Sollio.

Kaastra explained handling fertilizer is a balancing act to get the best price for producers, and to remove extra costs wherever possible.

“You got to get to some kind of an economy of scale where you want to make sure that you have enough volume to put through your assets and infrastructure, but you don’t have too much capacity and too much assets and infrastructure because that’s going to cost you a lot more on a per ton basis,” he said, adding the impact can easily double or cut in half the cost per ton.

One of the challenges with fertilizer in particular is the high demand in a short spring time frame, which can be pushed ahead or back, depending on weather and crops. In normal times, it helps fertilizer companies to know what demand will be, but in the present environment – which Kaastra explained through his presentation – the situation has evolved to the point that not placing order could result in not being able to purchase fertilizer.

In eastern Canada, which includes Ontario, about 85 per cent of the fertilizer supply comes from outside Canada.

“We kind of need to know what is needed to make sure the product shows up on time,” he said. “And if we can plan a bunch ahead, that also helps us to manage the price risk as well.”

Fertilizer imported to eastern Canada translates into between 80 and 90 vessel shipments. A 10 per cent difference in demand can mean between five and eight shiploads that may or may not be needed, and each requires as much as 60 days of planning prior to arrival.

“So, the key point there is that demand and volume is probably the biggest factor that we rely on to have some sort of predictability about how much we should bring in to make sure the product shows up,” Kaastra said.

Being a national company, Sollio can shift products to other parts of the country to provide a buffer to demand.

Politics plays a role

Added to the uncertainty is government policy and geopolitical events.

“You could have a government that says, ‘we’re going to ban exports,’ that could happen overnight,” Kaastra said. “You could have a war that shows up in one part of the world, that impacts supply in a very short period of time. You could have our own government that puts sanctions in place, or tariffs in place, to prevent a product from coming in.”

Kaastra argued government policy that restricts fertilizer trade and fertilizer movement could have an impact on overall food security.

“And those aren’t cheap words, that’s real. Fertilizer accounts for as much as 60 per cent of food supply around the world. Without it, we’d be facing food shortages,” he said.

Kaastra addressed why western Canada can’t supply the remainder of the country, explaining there is no phosphorus production in Canada and it comes in from the U.S. or West Africa.

Western Canada used to be a net exporter of nitrogen, but that has changed with higher demand as canola production increased.

Potash, the primary supply for potassium, is a different story and there is more of it.

With fertilizer being a bulky commodity, Kaastra said dependable shipping is a must for reliability.

“Every time a port facility goes on strike, that’s an impact of millions of dollars a day,” he said. “If the rail system shuts down, that strips out as much as $60 million per day out of the Canadian economy.”

Beyond strikes, Kaastra talked about the capability of Canada’s port facilities. Putting it in perspective with the current talk of alternative markets, he said if Canada was to decrease the amount it exported to the U.S. by three to five per cent and sent it elsewhere, it would push the existing port infrastructure to its capacity. And ports will be needed for any export.

“This shouldn’t be a surprise to anybody in the room, but if Canada wants to be an agriculture powerhouse, or get back to being an agriculture powerhouse on the world stage, it needs to focus on making sure that it reinvests as it should in infrastructure and logistics,” he said.

Fertilizer logistics

Canada uses 10 million tons of fertilizer on a weight basis annually, which equates to 2.5 per cent of world production. The biggest users are China and India.

The United States and Morocco are major sources of Canadian fertilizer. Russia used to be before sanctions were put in place. That country represents 13 per cent of the world’s fertilizer production.

“One thing I want to highlight is that the U.S. does continue to import from Russia,” he said, explaining taking that large of a source completely out of the picture would have huge impacts.

“Geopolitical uncertainty is one of the biggest drivers of fertilizer supply and price,” Kaastra said, adding it is the most uncontrollable factor.

China’s decision to allow Canadian canola at a lower rate will impact fertilizer prices this spring as demand could increase.

In Europe, there is outcry in the farm community because carbon taxes are impacting farming competitiveness. Kaastra said the same is true in Canada.

“There needs to be a carbon price adjustment that’s imposed on fertilizer coming into this country.”

Typically, when grain prices go down, fertilizer prices go down, but Kaastra said there is a lag to this occurring.

There are other global factors playing into current fertilizer pricing. With urea, China is restricting exports, Iran is in an economic crisis and the Ukraine-Russia war is having an impact. Trinidad is still a source of urea.

Kaastra called phosphate prices “stubbornly high.” Again, China has a ban on exports, but on the bright side West Africa is planning to increase its production.

The potash price is driven by markets. Renegotiation of the US-Mexico-Canada trade agreement will be a factor, as well as corn prices.

The possibility of no fertilizer

At no point did Kaastra say there would be no fertilizer available due to supply, but he did say with global conditions, producers shouldn’t assume there will be fertilizer available at the last minute if they don’t pre-order.

“If you’re planning on resupply in spring, three weeks is a matter of having a product or not having a product,” he said, reiterating his point that the industry needs to know how much to bring in.

Kaastra said having a trusted supplier can go a long way in reducing headaches if needs change.

“That doesn’t obligate you to buy from them, but make sure you have a preferred supplier that you’re going to work with. Whoever that is, to make sure that they’re thinking about you, to make sure that they have a plan in place to have fertilizer in the coming spring,” he explained, adding suppliers know plans can change.

On a positive note, Kaastra said evolving crop technology that increases yields is a good thing and diminishes the need for fertilizer. 