04 May 2023
by Nico van Burick
Farmers are rejoicing over the respite brought by the drop in fertiliser prices, but fertiliser companies are in a tight spot as expensive imported fertilisers are now being sold at a loss.
Local fertiliser companies are stuck with billions of rands worth of fertiliser and agricultural chemicals, which were imported at great cost last year at a time of international shortages and must now be sold after a significant drop in prices.
Tom Mason, Chairperson of the Fertilizer Association of Southern Africa (Fertasa), said at the organisation’s yearly congress in Pretoria that this is a very serious problem and that fertiliser companies are going to lose millions of rands. He says that one agricultural chemical company, which he does not want to identify, has R1, 2 billion’s stock that must now be sold at a loss of between R300 million and R400 million.
“For example, there are companies that purchased glyphosate for between R180 and R200 per litre. The price has now dropped to between R120 and R155 per litre. They will have to pay for every litre they sell in the new season. There is no other solution except absorbing the losses. It is great news for farmers that the prices have come down, but it is a big quandary for fertiliser companies. They also cannot just keep the stock as their working capital is tied to it.”
He says that there was a phase during which there was a big shortage of glyphosate and the demand from producers was big. They encouraged companies to import regardless of the costs.
“A further problem that has come up is that companies imported products that they were unable to get from the ports for months and are stuck with now.”
In February this year, the price of glyphosate was 32% lower on an annual basis and the prices of ammonia, urea, di-ammonium phosphate and potassium chloride were respectively 6%, 36%, 28% and 14% lower in rand value. If the rand had not weakened against the dollar, the declines would have been even greater.
Tom says the fact that the production cost of, for example, maize decreased is good news for farmers as their profitability is threatened by high input costs. The high price of fertiliser had a bigger adverse effect on maize production than that of oil seeds. He says that fertiliser’s share on total direct costs for maize rose on average from 35% in 2021 to 49% in 2023. The outlook looks much better for the new season.
Regarding profitability, 2019 to 2022 were stand-out years for maize as it far outperformed soybeans and sunflowers’ profitability. It is predicted that maize will perform better this year as well but will fall lower than soybeans and sunflowers in 2024 if commodity prices normalise.
Crops under irrigation have fallen significantly in profitability from the levels of 2022. The profitability of maize, sunflowers and soybeans are 45%, 41% and 13% lower respectively. This decline is attributed to higher production costs in an environment in which commodity prices have moved relatively sideways.