The double exposure problem in fertiliser — when input costs and selling prices both move against you

Most commodity-exposed businesses face volatility on one side of the P&L. They either buy a volatile input and sell into a relatively stable market, or they sell a volatile product while holding a more manageable cost base. The challenge is difficult, but the exposure is visible.

‍

Fertiliser producers face pressure on both sides at once.

‍

Natural gas is widely recognised as the dominant cost driver in ammonia production, and ammonia is the upstream feedstock for urea and most nitrogen-based fertilisers. Public and industry sources commonly describe gas as roughly 70% to 90% of ammonia production cost depending on plant efficiency, location, and feedstock structure. When gas prices move, production economics move with them, often with limited room for operational offset.

‍

Europe’s 2021-2022 gas crisis made the problem visible at scale. Benchmark European gas prices rose from relatively moderate levels in early 2021 to extreme peaks in 2022, with TTF prices briefly moving above €300 per MWh during the height of the crisis. Several fertiliser producers in Europe reduced output or curtailed production when gas economics no longer supported normal operating rates.

‍

That is the input side. The output side compounds it.

‍

Fertiliser selling prices are also market-priced, shaped by crop cycles, farm economics, global supply, and trade flows. Urea, one of the most widely traded nitrogen fertilisers, rose sharply in the 2021 cycle and then fell back as supply conditions normalised and demand weakened. The important point is not the exact level at any one date. It is that the selling price does not reliably offset the input cost at the same speed or in the same proportion.

‍

The decision problem is therefore not simply whether to buy gas forward or sell fertiliser forward. Both actions are available and both are used. The real problem is keeping the two decisions aligned — understanding how the input-cost trajectory and the selling-price trajectory interact before one side is fixed and the other side moves away.

‍

A producer that locks gas at what looks like a favourable price and then sees fertiliser selling prices weaken has not necessarily made a bad hedge in isolation. It may have made a decision without a sufficient view of the other side of the position.

‍

The teams managing this well are not trying to predict both markets perfectly. They are building decision checkpoints that look at both exposures together: what is the current relationship between input cost direction and forward selling price, at what point does a move on one side require a response on the other, and who owns that decision before the window closes?

‍

That question, asked before the position moves against you, is the difference between a managed outcome and a reactive one.

‍

This is the problem Sybilion is built for. If it maps to your situation, the conversation starts here.

‍

Source notes

• UNCTAD fertiliser market material: https://unctad.org/system/files/non-official-document/monika-tothova_myem2024.pdf
• ESMA article on August 2022 gas surge: https://www.esma.europa.eu/sites/default/files/2023-10/ESMA50-524821-2963_TRV_Article_the_August_2022_surge_in_the_price_of_natural_gas_futures.pdf‍
• EU natural gas history: https://tradingeconomics.com/commodity/eu-natural-gas