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Farmer Fertilizer Focus - Potash

By: Josh Linville, Vice President- Fertilizer

Banner Fertilizer
March '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
While the price curve on potash has remained negative, the tide has slowed as we near spring season.
I wouldn't be surprised to see price hold steady over the next few weeks before starting a slide as we move into planting/summer months.
When I look at current values vs what is considered "normal", the immediate thought is "of course prices can fall substantially from here".  However, that also ignores the grain complex and the loss of major tons around the world.
We are living in a world where Dec '23 corn values dipping below $5.70 is considered "cheap".  We are also living in a world where we still have lost access to the 3rd largest exporter in the world.  
To think that we are going back to those 2018 - 2020 price ranges feels a bit silly.  
There is a growing part of me that thinks we are getting relatively close to the bottom.  If we have a solid spring season and clear out a lot of inventory, it only helps that narrative.  Producers will see a lot of open space that needs to be filled thru the summertime.
Last, I'm speaking about this market from a higher level view.  DO NOT LOSE SIGHT OF YOUR LOCATION.  This supply chain has been very reluctant to move product.  Farmers are holding off in hopes of lower prices.  Retailers are worried about putting product in place our of fear of prices dropping and leaving them with a loss.  Same goes for the supply chain.  If we get into the application period and all demand steps forward at once, it is going to be tough.  What happens overall will not mater if your local market struggles to keep up.
Should you lock in spring '23 potash needs today?
If you are going to use potash this spring, you are officially out of time.
We are on the cusp of spring season.  In fact, those of you reading in the south are already started.
At this point, the ball is rolling.  If you are planning on applying this spring, I would suggest having a conversation with your retailer much sooner than later.
Walking into the office with a sunny disposition is good.
Walking in with some beer is great.
Walking in with their favorite whiskey might be best!!!!!!
In all seriousness, have that conversation now.  Time has run out.
General global potash information
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What has happened in the last 30 days?
Belarus exports remain low to finish 2022
We finally have all the export data regarding Belarusian potash exports thru 2022 and frankly, it didn't tell us anything we didn't already know.
With relations still strained with Lithuania (yes, strained is a nice way of putting it), Belarus remains cut from the outside world.  This means we are still largely without the number 3 exporter in the world.  Prices have obviously been trending down but it is likely that this situation will keep prices from getting near the 2018 - 2020 values some are hoping for.  
There is, of course, an extremely small chance that shipments resume in 2023.  However, it is much more likely that this trend will continue as we move forward.  Losing Belarus means global supplies are down.  If demand returns and is met with less supply, it could be a tinderbox situation.
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Russian exports remain solid for 2022, but fall almost 1M ton short of the 3-year average
When Russia invaded Ukraine, we immediately thought that the world would simply stop doing business with Russia and Russian businesses.  That was my big fail of 2022 as we have learned this simply wasn't the case.  All the bluster and all the speeches fell short of actually implementing any action outside of Canada.
Russia used the political situation to start building new political allies around the world and their export flows continued.
By the end of 2022, the cumulative total fell short of the 3-year average by nearly 1M tons.  I personally feel this has more to do with a lack of demand than it does a lack of ability.  Simply put, by the last part of 2022, no one wanted anymore supplies.
Unless Russia continues to escalate the situation in Ukraine to a point where the world says enough and shuts down business with anyone and everyone in Russia, it is hard to see their exports slowing/stopping.  
This is a win for those wanting lower prices.
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Current grain/potash ratios are solid.  Is demand coming back?
If someone had told me a year ago that we would be priced where we are today, I would have chuckled a bit and said there was very little chance of that.
And yet, here we are.
Not only have potash values fallen significantly, grain values are also holding together relatively well.  I was dismayed to see Dec '23 corn values break below its recent $5.90 - $6 range, but having values still trading in the $5.60 - $5.70 range is still a treat.
Today, the value is solid.  I know that everyone wishes corn was worth $3/bushel more than it is and potash was half the price it is today, but the reality is that today's value is significantly improved from this time last year.  
This could mean that we see a solid comeback of demand over the next several weeks.  We are hearing some decent reports from the southern regions that have gotten moisture.
Ultimately, you the farmer will determine this answer.  If we go thru another spring season with demand low, we will carry inventory into the summer and it will act like an anchor.  If demand is high and we wipe out inventories, prices could stall or start to push higher.
We are at that weird part of the year where there isn't much more that I can tell you.  It's simply too late for that.
 
Where are current values in relation to the past
NOLA/New Orleans Louisiana 
  • Vs 30 days ago - -6% or approximately $25 lower
  • Vs 90 days ago - -26% or approximately $135 lower
  • Vs 6 months ago - -40% or approximately $250 lower
  • Vs 1 year ago - -48% or approximately $345 lower

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

  • Vs 30 days ago - -3% or approximately $15 lower
  • Vs 90 days ago - -25% or approximately $154 lower
  • Vs 6 months ago - -37% or approximately $270 lower
  • Vs 1 year ago - -39% or approximately $289 lower

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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 remain solid – unfortunately, some grain prices have been under pressure in the last week or two.  Fortunately, a lot of the ratio values are still phenomenal compared to this time last year.  We could see a surge in demand that the market is not expecting that could wipe out inventories.  We close spring with nothing left and producers could be back to controlling negotiations.
  • World's 3rd largest export remains out and number 2 is on thin ice - the most up to date export data regarding Belarus points to export levels remaining extremely low.  That makes sense given their being land locked.  New transportation methods do not magically appear overnight.  Worse, Russia appears to be planning a spring offensive.  This could cause the world to take further steps to isolate their country.  If this means including fertilizer, we could quickly lose the 2nd and 3rd largest exporters in the world. 
  • Potash manufacturing remains low due to lower values – a perfect example is Colonsay.  This mine was brought back to production with high global potash values.  Today, that mine remains offline due to low values.  It remains to be seen if other mines/companies will take similar steps but if they do and they limit the amount of supply available, we could see the S&D move back to bullish.
Bearish Factors 
  • The longer buyers wait, the cheaper it gets – did I reword the exact same thing from February?  Yes...yes I did!!!  It remains true.  Buyers around the world have been rewarded by not purchasing their potash.  We could see farmers reduce/cut potash application this spring in hopes that values are even CHEAPER this fall.  If it doesn't affect yields, hard to argue with this strategy.
  • Russia/Belarus can come back in a hurry – again, this is just rehashed from last month...but still pertinent.  Russia never really went anywhere, though their 2022 export levels were down from the 3-year average.  Belarus is a different story.  It is highly unlikely that we would see this happen but if Lithuania were to bend to global pressure, we could see them allow potash shipment thru their country and out to sea.  Both countries need cash flow.  The world wants lower potash values.  See where I'm going?
  • Potash production is still profitable so there is little reason for producers to slow/stop production - one thing I learned in my short stint in Wichita is to not ever suggest shutting down a profitable plant.  It appears potash manufacturers are still making money at today's market values.  If they are profitable, it will be hard to make the decision to cut production.  That means supply continues to be made.
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
  • Belarus export ability/options - Belarus is the world's 3rd largest exporter of potash...at least it was when it could export potash.  We do not anticipate Belarus returning to their former export glory in the short term but if they did, it would add A LOT of supply to the world S&D.
  • Russian export levels - as the second largest potash exporter in the world, they kind of matter.  While there is little that points to their ability to export being restricted (still seems they have plenty of partners around the world), if they were to escalate the invasion to a point that the world targeted their export ability, we could be in a situation where we lose numbers 2 and 3.
  • North American logistics - let's face it, no one in the supply chain wants to take physical product price risk in a downward market.  Farmers want to hold off until the last minute.  Retailers cannot withstand $50 - $100/ton losses.  That means the entire supply chain has been much more dodgy on putting product into place.  This is going to put a strain on logistics as it feels more of the market is taking a "just in time" approach.
  • The time for strategy is over - spring season is here and for potash it will largely be done by the next newsletter.  Be talking to your retailer early and often for your needs. 

All data was sourced from StoneX unless otherwise noted.

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