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Even before the huge price rises since last autumn, the fertiliser market has struggled with transparency in both pricing and supply. It is also hard to have an idea of such things as, the pace of future imports or whether any supply chain is reliable.

Gas price: a useful proxy for fertiliser price

Since September, the NFU has undertaken a significant amount of analysis on fertiliser – both from a technical perspective – we use yield response curves to give us a picture of where we are heading – and at a market level, which allows us to better anticipate how volatility in gas prices translates into fertiliser prices.

Unlike fertiliser, the UK gas market has good transparency in terms of pricing. This is because gas has a futures market.

Coincidently, the ICE exchange hosts the gas futures, which is also the home of UK wheat futures.

This really should give an opportunity for innovation to help the industry better hedge gas and wheat prices – this, though, is for another day.

Using data from Defra, Ofgem, AHDB and gas futures markets – the NFU has been able to model how the cost of gas influences the price of fertiliser.

While gas is heavily influential on the fertiliser price, it is far from a like-for-like relationship.

This is clearly because fertiliser is its own market, with imports playing a key role.

The UK is typically 40% self-sufficient in straight nitrogen fertiliser. It is now possible to use current and forward gas prices to calculate an expected range for fertiliser prices.

This is called the FGVE (Gas-Fertiliser Value Equivalent) and is similar to how the value of milk in cheese is analysed in the dairy market.

What does the current gas market tell us?

In recent weeks, UK gas demand has been falling, and with limited storage capacity, the market has been said to have a glut of gas – albeit at prices over three times higher year on year.

Meanwhile, forward gas prices for next winter have been relatively more expensive. For example, as of18 May, gas for November 2022 was 36% more expensive than that for June 2022.

Using gas prices as of 18 May, the GFVE model suggested that AN (ammonium nitrate) should be in the following ranges:

• £660 to £860 per tonne for June
• £860 to £1,060 per tonne for September
• £905 to £1,105 per tonne for November

Gas market evolution in mid-May

On 12 May, the UK market was presented with the first new season fertiliser price, which despite being hugely inflated year-on-year, found demand from farmers.

Since then, further prices were made available on 18 May with expectations that imported products will start to be offered.

There have been several concerns about the increase in the fertiliser price between 12–18 May. Without transparency to help business have market context, the price increase has evidently fuelled concerns of profiteering and mistrust.

Moving to a more market-orientated industry requires transparency so that buyers and sellers alike can make informed decisions. These issue around transparency is a growing area of work for NFU across several markets.

The GFVE model helps put fertiliser price changes into perspective.

• On 11 May, using the July gas price, the GFVE puts AN in a range of £610 to £810 per tonne.
• By 18 May, the GVFE for July had moved to a range of £730 to £930 per tonne.
• On 23 May, due to further falls in the gas price, the GFVE for July declined to a range of £570 to £790 per tonne.

With such ongoing volatility in the gas markets and implications for fertiliser, it is useful to keep an eye on current and forward gas prices.

Gas futures prices are freely available on the ICE website: .

Waiting for imports

With a line in the sand set with new season pricing, the industry awaits the arrival of imported fertiliser price offers.

One fertiliser plant remains closed in the UK. This means there will likely be an increased reliance on imported fertiliser for the 2023 growing season.

This is another area where the market needs transparency to understand. Not just pricing developments but also inform the risks facing physical availability and what that might mean for agriculture’s production in 2023.

Finally, it is important to remember that regulations facing urea usage have been deferred, and so for 2023, there will be no changes.

This is critical in giving farmers maximum flexibility in the fertiliser products that can be used.