Natural gas prices soar in August: Grain market daily

Wednesday, 24 August 2022

Market commentary

  • Yesterday, global grain and oilseed futures markets closed up. This was on the back of renewed concerns over the impact of hot/dry weather on the US maize and soyabean crops, following a Midwest crop tour.
  • Nov-22 UK feed wheat futures settled at £266.95/t yesterday, gaining £6.10/t from Monday’s close. The Nov-23 contract was up £8.15/t over the same period, closing at £252.50/t yesterday.
  • Nov-22 Paris rapeseed futures gained €12.75/t from Mondays close, to settle at €635.50/t yesterday.

Natural gas prices soar in August

Over the past month, UK natural gas prices have been rising, with nearby ICE UK natural gas futures closing at 526.4p/therm on Monday. This is the highest the price series has closed at since 7 March, when it reached 539.5p/therm, following the invasion of Ukraine. However, yesterday prices did ease slightly, with nearby UK natural gas prices closing at 494.4p/therm.

Graph showing UK nearby natural gas prices

At the end of July, Russian gas supplier Gazprom, cut the flow of gas running through the Nord stream 1 pipeline to just 20% of normal capacity. The Nord stream 1 pipeline is the single largest pipeline that brings natural gas from Russia to Europe via Germany.

On Friday, Gazprom announced that they will be carrying out maintenance to the pipeline early next month, which will result in a temporary shutdown of the line for 3 days (Reuters). This supply concern is leading to the rise in UK natural gas prices, along with rising liquid natural gas markets in Asia.

With natural gas making up around 60-80% of fertiliser production costs in Europe, the rising costs of gas, have led to some fertiliser manufacturers pausing production, with others shutting plants completely. Here in the UK, CF industries, the largest fertiliser manufacturer domestically, has permanently ceased production at its Cheshire based plant.

Over the past six months, we have seen domestic fertiliser prices soar. In July, the spot delivered price for UK produced Ammonium Nitrate (34.5% N) was over one and a half times (158%) the price in July 2021, averaging £841/t.

Graph showing UK natural gas prices and fertiliser prices

As natural gas prices have been rising significantly again over the past month, leading to further increases in fertiliser production costs, domestic fertiliser prices are likely to remain well above year earlier levels in at least the short to mid-term.

With volatility in both grain and fertiliser markets continuing, it is important to have a handle on cost of production, to decide on the rate of fertiliser application for next season’s crops. AHDB have a number of resources to help growers assess fertiliser applications, including the nitrogen fertiliser adjustment calculator and analysis on different application strategies.

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