RUSSIAN restrictions to gas supplies to Europe spells further bad news for farmers looking for a drop in nitrogen fertiliser prices.
Russian president Vladimir Putin has shut down gas pipelines to Europe, leaving European energy prices surging in the wake of the decision.
Thomas Elder Markets commodity analyst Andrew Whitelaw said energy demand was being rationed accordingly.
"When there is this sort of squeeze on supply then those big gas users look at what they are doing very, very carefully," Mr Whitelaw said.
"Nitrogen fertiliser, like urea, uses a lot of gas in the manufacturing process so you are going to see a slowdown in the production of urea, which in turn will mean less supply and more demand for that limited supply," he said.
"It was similar to what happened last year when prices for fertiliser went up, so I think Australian agriculture has to look at the prospect of another really high year for input costs in 2023."
Australia's peak demand for nitrogen fertiliser is not until autumn, meaning there is some time for market drivers to change, but while traditionally demand for gas tapers into the new year as northern hemisphere needs for gas for domestic heating settles, Mr Whitelaw said he did not see a big turnaround in the market soon.
"Russia seems determined to use energy as a weapon in its war on Ukraine, testing European support by cutting their access to cheaper Russian gas, just as it is using grain as a weapon in the Middle East, where nations there are desperate for food," Mr Whitelaw said.
"They have now switched off the gas pipelines to Europe and will not allow the gas to flow until European trade sanctions are removed."
He said there had been sharp rises in urea costs in key European regions in the past week due to the high gas price causing many European producers to curtail production.
Looking forward to the next Australian crop, Mr Whitelaw said another year of high fertiliser prices raised dilemmas for growers.
"There has been a run of three bumper years in a row, even four in some places, and that is ripping out a lot of nitrogen so farmers have to be aware of the yield implications of cutting fertiliser levels.
"On the other hand, there is also the potential to pay a lot for an input and not get an economic return for it if the season does not pan out.
"In a way this year, where we have had high subsoil levels virtually all the way through, was not a bad year to have high input costs as farmers have been reasonably confident they would be able to grow enough grain to match the cost of the fertiliser.
"If we have a more marginal season those decisions will become a lot more difficult."