Europe's fertilizer supply crunch continues to tighten after Yara International ASA announced Thursday that third-quarter ammonia output was slashed due to skyrocketing natural gas prices, putting more upward pressure on food inflation as the cost-of-living crisis worsens.
The Norwegian producer said ammonia output in the quarter dropped to 57% of capacity in Europe, plunging from 81% in the previous quarter. It warned output could collapse to just 35% if NatGas prices stay elevated through the cold season, according to Bloomberg.
Russia's squeeze on NatGas, Western sanctions on Moscow inhibiting energy flows from Russia, and Nord Stream pipeline sabotage has caused a massive squeeze on shipments to the energy-stricken continent. The good news is Europe's NatGas storage facilities are almost full, but the EU has yet to find new fuel sources to offset Russian flows entirely. A significant risk looms if a cold, harsh winter quickly draws down supplies.
Drawing down on supplies would send EU NatGas prices to higher levels from here.
As a reminder, NatGas is a key feedstock for fertilizers and a power source for European heavy industries. Companies and households have been battered by soaring energy inflation.
The problem of reduced fertilizer output by Yara and others is that higher costs will affect farmers into the next growing season.
Some farmers may reduce the amount of fertilizer they use to save costs which may stress wheat and corn crops next year and reduce yield potential. Perhaps the global food crisis only worsens from here.