By: Josh Linville, Vice President- Fertilizer
Things can shift rather quickly. Just think back to last August. Farmer cash flow was terrible. Fertilizer demand was really low. Inventories on most products were perceived high. Grain prices were crap. That was 10 months ago and we couldn't be more different.
Just keep this in mind that everything is cyclical. Fertilizer/grain prices will not stay here forever. It may take a few weeks, it may take months but eventually...
This is the 3rd Indian urea purchase tender in short order as they continue to come up short on awards total (do not buy enough product to cover their demand). Estimates were that they needed 1 - 1.25 million metric tons to cover their needs...they got 565,000 metric tons. World producers/traders continue to see this as an extremely bullish situation as they are struggling to get enough at "cheap" prices and will need to pay more to get their purchase needs met.
Plainly put: India is getting desperate for tonnage and the market knows it and will keep raising prices until they get what they need.
The Q3 period is a typically low demand period around the world. That is why we usually see prices dip during this timeframe. Producers build inventories. Demand is hard to come by. Prices come down in an attempt to beg demand to step forward. That is a normal season...
This year isn't normal. This year, producers are not only going into this period very low on inventories, they are also well sold into the next couple months. Again, they will feel very little pressure to have to sell anything. If they do not have any pressure, they can wait until demand returns in Q4 and then proceed.
In a bit of a shock in this last India tender, Chinese exports were tied to approximately 300,000 metric tons of the 565,000 metric tons total. That is a big percentage and would usually be seen as a sign that China is going to start participating more in the global market.
However, shortly after that news was reported, domestic Chinese values started to climb quickly ($20 - $30). Basically, domestic demand was tell domestic producers to stop exporting because they need the product. This has lowered the fear that China will begin dominating the world market and is allowing global values to continue to climb.
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