Fertilizer prices continue to dip and spike around 10-year highs. Many are recalling how the current market is echoing similarities and pulling on lessons learned in 2008/2009.

“For the most part, retailers have been though cycles like this in the past,” says Lon Swanson Senior vice president of food and ag industry advisors at Wells Fargo. “The stress levels related to this type of market have changed the way retailers have approached it today. With fertilizer prices at this level, it’s like a hot potato. No one wants to hold the high price assets at these levels.”

Swanson says he’s seeing a trend of retailers closely tracking their daily position in regard to fertilizer.

“They are assessing where they are, what’s their exposure to the market, and they aren’t buying as much at one time. It’s more of a cost plus arrangement, and limiting their risk and exposure,” Swanson says.

This strategy reflects a retail organization’s storage capacities, but if it was half of retailers taking this approach in the past, Swanson says now it is more like 75%.

“Just over a year ago we were at decade low prices, but we’ve had a flock of black swan events to push these markets to the levels where they are,” Swanson says. “And we were at very low storage levels before the price increases, so it’s really made it much more dramatic.”

Of the factors that got the market to where it is, Swanson cites, natural gas prices in Europe, world supply dynamics, and geopolitical developments.

“But the elephant in the room is China—and its decisions on production and its lack of exporting product,” Swanson says. His colleague Dr. Michael Swanson, ag economist at Wells Fargo, agrees at the magnified impact China has on this market.  

“In terms of nitrogen we have been very dependent upon the Chinese supply in some categories. And that’s reasonable because they were always cheapest. And we did see some of our capacity around the world kind of go offline, because they were just going to compete with the Chinese,” Dr. Swanson says. “Now, the Chinese changed their mind to say, they're really not willing to sell this product at that price anymore.”

Dr. Swanson adds the decisions made by China are opaque as to why, when and how much. That dynamic adds volatility to the global supply, and this is causing a time of reevaluation across the global fertilizer market.

“I think the fertilizer market is in a very serious reevaluation mode right now about who should you import from at what price and what should you expect. I don't think this has anything to do with a sudden shift in supply or demand, as much as it those type of questions from who and why,” Dr. Swanson says.

Dr. Swanson cautions that changes to the global fertilizer market and having new sources come online will take significant time and investment. But it’s something he’s watching closely.

“The industry is learning right now. I think it might like to have two or three more supply points around the world going forward, even if they're a little bit more marginally expensive just to have greater stability,” Dr. Swanson says.