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Farmer Fertilizer Focus - Potash

By: Josh Linville, Vice President- Fertilizer

Banner Fertilizer
February'23 POTASH
 
Josh Linville
Vice President - Fertilizer
NOLA potash price graph
Please remember that this is looking at the cost of one short ton of potash sitting in a barge at NOLA (New Orleans, Louisiana).  Your cost is not going to be the same.  This should be looked at more in regards to the price direction rather than the actual pricing.
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What everyone wants to know first, what do we think will happen going forward
As the graph above shows, the general trend of potash pricing continues lower.  Stories of excess inventories and little demand continue to keep weight on prices.  However...
Spring demand is just around the corner which I think is going to surprise the market as the value is there when compared to grain values.  Should see a rush of demand in the coming weeks.
Today, it is near the end of January.  That means a lot of the Northern Hemisphere only has a few weeks to put product into place.  With so much of the supply chain holding off on purchases (from the farmgate to the trade system), we could see a huge surge of movement...whenever buyers show up.
Take a look at the ratios below.  Many of those current ratios are finally back into recent year "normal" ranges.  That should mean a boost of demand and a much needed support level for the marketplace.
What happens after spring demand is anyone's guess but if you are needing stuff this spring, time is working against you...
Should you lock in spring '23 potash needs today?
If your numbers work/are profitable, start locking up your spring needs.
There are a couple reasons why I'm backing locking in spring needs today.
  1. There is not much time until spring to prepare - it sure feels like this winter is going to drag on forever, but the calendar tells a different story.  This year is much different.  Normally, the market trends higher as we move into demand periods.   This time it is falling.  Farmers are holding off on purchases in hopes of lower prices.  Rightfully so.  Retailers are holding off on purchases for fear of losing money and going out of business.  Rightfully so.  Suppliers/traders are holding off for fear of lower prices.  Bearish cycles cause logistics to slow down.  That could be a problem.
  2. The value is there - there are no guarantee's that grain values will remain as high as they are today.  However, today they are high and many of the ratios are solid again.  I do not think they are solid enough to go building soil levels but I certainly think good enough to maintain levels.  With the volatility that we have seen, I'm a fan of locking in profits...

This industry has cried wolf about supplies over and over again.  It is a solid sales tool that has brought buyers forward.  With the way this has shaped up, I'm afraid this is the year we see serious issues.

Better to guarantee the product is in place and a profit is locked in than risk it for a little more downside.

General global potash information
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What has happened in the last 30 days?
North American producers are still keeping production slow
This isn't a surprise.  The last couple seasons have seen demand at disappointing levels (lower, that is).  That has helped inventories build to uncomfortably high levels at production sites.  Global values continue to trend lower as buyers refuse to step forward.  The market has hit the point where the only way to stem the tide is to slow/stop production.
One production companies CEO was interviewed about the topic and mirrored the same thoughts above.  
Eventually, demand will step forward and help alleviate the situation but today does not seem to be that day...
 
Is better than expected demand coming?
Take a look at the ratio charts below.  To make the point, I'll focus on corn.
Almost exactly one year ago, the ratio sat at 120 bushels of corn for every ton of potash.  Today, that same ratio sits at 70 bushels of corn for every ton of potash.  Not only that but the ratio is only 20 higher than the lowest level seen since 2018.
Today, the market is focused on falling prices since no one wants to grab tons and see the price drop further.  However, if we look at the value, it is a solid time to jump in and lock up needs.  We are hearing positive demand reports from the south...in the areas where they are running following rains.  I'm expecting that will be the case across North America and likely around the world.
If and when that demand steps forward, it will put manufacturers back in control and they REALLY like higher prices.  
 
No improvement from Belarus, world's 3rd largest producer
I know this story is a broken record but for those that are new:
Belarus has historically been the 3rd largest potash producer in the world.  When Russia invaded Ukraine, Belarus sided with Russia.  This did not sit well with western countries.
Belarus is a landlocked nation and has been reliant on Lithuania to ship its product thru and out to sea.  Last February, after Belarus sided with Russia and helped in the invasion, Lithuania blocked any shipments moving forward.  Assets were seized.  Supply routes halted.  With the stroke of a pen, one of the more important producers to the world...was lost.
There continues to be hope that they will find new routes to return but that still does not appear to be the case with November exports still well below average.
Eventually, new routes will be developed (likely rail thru Russia and to deep sea ports from there) but that development takes time.  As long as Belarus is cut, global potash values will struggle to get back to the low prices seen in 2020.
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Where are current values in relation to the past
NOLA/New Orleans Louisiana 
  • Vs 30 days ago - -13% or approximately $60 lower
  • Vs 90 days ago - -29% or approximately $160 lower
  • Vs 6 months ago - -44% or approximately $315 lower
  • Vs 1 year ago - -39% or approximately $256 lower

image 62115

U.S. Midwest Average (average of several points across the Midwest)

  • Vs 30 days ago - -17% or approximately $99 lower
  • Vs 90 days ago - -29% or approximately $190 lower
  • Vs 6 months ago - -40% or approximately $314 lower
  • Vs 1 year ago - -31% or approximately $207 lower

image 62116

Bull/Bear Factors
Because no market is ever guaranteed to go higher/lower, we try to consider the factors that can sway values so that we are able to act when they occur rather than react.
Bullish Factors 
  • Grain/potash ratios are solid – when I updated some of the graph's, I was surprised at how aggressive it had gotten.  If the market can look past the "prices are still historically high" situation, they will see that so are grains and today's relationship is really good.  That could drive demand beyond expectations.
  • World still doesn't have its 3rd largest exporter - no change here with trade data thru November.  Belarus exports remain a shell of their former glory.
  • Potash manufacturers are cutting production – as potash prices continue to fall, manufacturers are actually taking steps to lower production.  This is no longer a theory/fear.  Today, the market does not seem to care...but eventually this catches up.
Bearish Factors 
  • Trend is a buyers friend today – this is the same point that has been made for months.  The trend continues to be lower.  The longer we wait, the more it drops...just be cautious of not waiting too long.  
  • Would Russian peace talks include Lithuania allowing Belarus to export? – this is a long shot as I do not believe that Russia is willing to talk peace that doesn't include parts of eastern Ukraine and I do not believe Ukraine will accept peace without their country back.  BUUUUT, if peace talks are fruitful, it could mean the return of Belarus product.
  • Fear of carryover - it is starting to feel like a correction could be coming short term.  But it might be just that, a short term situation.  Once spring is mostly done, fear of summer months could put the market back into a slide.
Where are the current potash/grain ratio values today?
We believe that only looking at the flat price of either grains or fertilizer can be misleading:
  • Only selling grain can hurt you if fertilizer prices rise substantially
  • Only buying fertilizer can hurt you if grain prices fall
We look at the ratio "value" to get a better indication of where we are or how many bushels of X does it take to pay for 1 ton of fertilizer.
Would you rather:
  • Spend 120 bushels to pay for 1 ton of potash
  • Spend 60 bushels to pay for 1 ton of potash
When we compare the current ratio value against recent years, we start to see if we are high or low.
YOUR VALUES WILL LOOK DIFFERENT
This graph looks at the NOLA potash price vs the flat grain price. There are no logistics on either product. Your location will look different due to fertilizer logistical costs, grain basis, etc.
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Josh Linville’s focal points
  • Russian peace possibility - I've said this before and I'll say it again.  I do not expect anything to come from recent discussions of peace talks.  I believe Russia will want to keep parts of Ukraine.  I do not think Ukraine will be willing to give up any of its land.  However, if progress is made, not only would it likely help resume normal Russian export programs but it would likely include Belarus being allowed to ship product again.
  • Overall spring demand - fall demand sure appears to be much poorer than anticipated which means product being carried over.  On the flip side, values have improved significantly and could be setting us up for a big spring run.  If that demand comes large, the market will react.
  • North American logistics - seems North American markets are finally getting some wins.  The rail strike was averted and river water flows have improved.  That does not mean we are out of the woods.  It seems that rail workers begrudgingly accepted the terms which means anything is possible going forward.  River flows are better but are still very low and could suffer before spring.  Global events do not matter if you cannot move product.
  • Potash manufacturer reaction to falling prices - this is something we saw play out in the last month with a producer announcing a production curtailment.  It appears one announcement is not enough to sway the market but if others start to mimic that move, that could be a difference maker.
  • Farmer/retailer conversations - WE NEED TO BE TALKING TO OUR RETAILER.  I know prices of potash are falling.  I get it.  We want and need every penny we can save.  However, if we are not talking to our supplier, they may not have what you need when you need it.  I'm not sure about you but I would much rather make sure it is there than risk another $10 - $20 downside.

All data was sourced from StoneX unless otherwise noted.

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