February - March 2025 Vol 46 No 1

Urea back to affordable levels

At EP3, our analysts have long been discussing the importance of transparency in the fertiliser market in Australia, even before we set up this business. Shortly after setting up EP3 (at the time TEM) in 2020, we launched the first publicly available cost and freight model for urea in Australia.

This wasn’t popular with many in the fertiliser industry (based on the angry calls we received). However, we continued to provide this information on a regular basis without any charge. This was so farmers could be aware of the trend of fertiliser pricing in Australia, the same kind of information you would get about any other agricultural commodity. This was especially important in recent years when fertiliser prices rose sky-high.

In order to improve transparency in the Australian fertiliser industry, we produced a cost, freight and unloading model.

We take the price of urea at the origin, add freight to Australia, and an unloading cost. This gives us an indication of the cost of getting urea to Australia. On this website, we provide this on a monthly basis publicly and more regularly to our private clients.

The purpose of this is not to give an exact price that the farmer will pay in Australia but to focus more on the trend of where the price is moving. So if the price for import has dropped A$500, we want to see some falls reflect in the local price you are being offered.

To validate our model, we review against the actual import price of urea, as reported by import data. This can be seen in Figure 1, which shows both alongside each other.

We use a one-month lag, which provides a correlation of 0.98, with one being a perfect correlation and zero being no correlation. So this is as close to a perfect relationship
as possible.

So let’s have a look at the pricing

Figure 2 shows the annual average price for urea each year back to 2017 (based on our model). The past two years have averaged around the A$600 per tonne mark, which is substantially below that of 2021 and 2022, when the price skyrocketed due to higher energy costs, in part caused by the war in Ukraine.

Prices are a lot more attractive than during that time, but still above the average from 2017 to 2020. The important thing to note is that during those times of high pricing, there was an expectation that prices would stay at these levels forever to hit a new norm. This doesn’t happen in commodities very often; they tend to go through high and low pricing cycles.

The current price for January is calculated at A$650, although this only includes a short period of data for the month.

For more information go to: https://episode3.net

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