Plenty to be gained for croppers in using urea

997890671GraceKing_125638758_greenandgoldcropsincymk

Amid the lower grain and oilseed prices this harvest, at least some inputs have also come off their extreme highs thanks to more stability in supply. When urea was expensive, we looked at the cost and benefit of applying it to crops. Now that it’s cheaper it’s worth checking on the tradeoff with the outlook for canola in 2024/25.

The last time we ran this analysis, supply chains were in a state of disruption. Covid-19 and the war in Ukraine each had varying impacts on the supply of inputs, trade of commodities, and costs, and raised concerns of supply chain resilience. In 2022 Australia’s normal pattern of fertiliser imports was turned on its head, particularly phosphates. This year a decrease in urea volumes out of Southeast Asia has also caused problems for supply chains. In the first three quarters of 2023 urea imports from Malaysia as a proportion of total Australian imports dropped from 20% in Q1-3 2022 to 11% in Q1-3 2023. Similarly, Indonesia’s share of supply dropped from 14% to 5% over the same period while the share of the UAE shifted from 21% to 30%, and Qatar up from 11% to 42%

Over the past year, urea prices have fallen rapidly. The price shown in Figure 1 is the Middle East export price, so not indicative of values here, but it shows the international trend in prices.  Urea has more than halved from the peak but is still around 85% stronger than pre-war values.

While we don’t know what the canola price will be come harvest 2024/25, the supply and demand picture is starting to shape up and can provide some clues. Despite a bumper global canola crop in 2022/23, and 2023/24 forecasts by the USDA tipping production to be the second highest on record, the supply and demand balance for canola remains tight. In fact, the global canola stocks-to-use ratio for 2023/24 is expected at 8%, not a record low but certainly tight (Figure 2).

The US, with its growing appetite for rapeseed oil to ‘fuel’ its Renewable Fuel Standard program, is a key source of additional demand. US rapeseed/canola oil imports for industrial purposes in 2023/24 are already estimated to reach a record 3 million tonnes. Casting the net out to 2024/25, growth in renewable diesel demand in North America is expected to drive an increase in demand for rapeseed/canola.

With this in mind, the trade is currently expecting the supply and demand balance for canola to remain tight into 2024/25. The MATIF forward curve is currently pricing Nov ‘24 canola at a 3% premium to the nearest Feb ’24 price. If we apply that premium to Australian canola values (not taking basis changes into account), it would put the 2024/25 harvest price at $720 in Kwinana which we can use as a rough guide in our trade-off calculation.

Figure 3 shows the cost of nitrogen used per hectare, versus the value of the canola crop per hectare at different target yields. The chart assumes urea costs $750/t not including spreading, while the canola price is estimated at $720/t. There is also the assumption that all the nitrogen required (40kg/t produced) is spread as urea, which obviously isn’t the case. Nitrogen already present in the soil will be used, as will that in sowing fertiliser. Nitrogen response rates have been sourced from the GRDC. 

What does it mean?

There is plenty to be gained for croppers in using urea on good N-responsive soils. Looking ahead to next season, there might be some value in planning fertiliser requirements sooner rather than later. While we don’t want to expect the worst, we’ve seen the consequence of disruptions to global supply chains on the supply of inputs over the last three years. ‘Just in time’ supply isn’t without risk in the current environment of global trade.

Have any questions or comments?

We love to hear from you!

Print This Post

Key Points

  • Urea prices have more than halved over the last year from peak to trough.
  • Using urea to boost canola yields will have a strong positive payoff.
  • Planning 2024/25 requirements early will help to mitigate the risk of ‘just in time’ supply.

Click on figure to expand

Click on figure to expand

Click on figure to expand

Data sources: Refinitiv, GRDC, ABS, Mecardo

Make decisions with confidence- ask about our board packs, bespoke forecasting and risk management services

Have any questions or comments?

We love to hear from you!
Insights

Goat and sheepmeat correlations

The drop in meat prices since mid-2022 has affected beef, lamb, mutton, and goat. This article investigates the relationship between goat meat prices and other

Read More »

Want market insights delivered straight to your inbox?

Sign up to the mailing list to get regular updates to new analysis and market outlooks

Independent analysis and outlook for wool, livestock and grain markets delivered to you as it’s published

Commodity conversations podcast cover image, a illustration of a sheep standing on a cow's back with grain either side
Listen to the podcast

Join the Mecardo team for the Commodity Conversations podcast, where we provide short weekly market recaps and longer conversations with guests to discuss the drivers and trends in livestock, grain and fibre markets.

Photo of a farmer surrounded by Merino sheep in dusty yards
Research: Analysis of the Australian sheep flock

In this report for LiveCorp and MLA, we analysed the historical trends in the demographics of the Australian sheep flock, examining domestic factors that influence farm-level enterprise decision making. 

Image of harvested grain pouring into a chaser bin
SERVICES AND CAPABILITIES STATEMENT BROCHURE

We don’t just bring you the most up to date market insights. Find out more about Mecardo’s services including risk management advisory, modelling, benchmarking, research & consultancy.