July '23 Farmer Fertilizer Focus - Potash

By: Josh Linville, Vice President- Fertilizer

Sat, 01 Jul 2023, 20:17

July '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.

What everyone wants to know first, what do we think will happen going forward

Global

As you will read below, the Canpotex sale to China was done at a shockingly low value vs expectations. That isn't saying it was wrong, just lower than what many thought. Because this bar has been set and global S&D continues to feel adequate:

Global potash prices appear to be steady to lower going forward

Everything continues to normalize. Yes, we are continuing to operate without most of Belarus's exports...but we are now used to it. Yes, we are watching Russia with a worried eye...but we are getting used to it. Many of the things that scared us to death 12 - 18 months ago are now considered "normal" and when things normalize, emotions become steady and prices return to normal.

Doesn't mean this cannot change but just the view today.

North America

North America is much like the world except that it just ran inventories to very low levels following spring. That refill process will need some attention but ultimately is not something we are terrified of...just watching.

Similar to global, potash prices appear to be lower going forward

With it being July, there is a lot of time between now and fall. A lot of farmers learned that they do not have to apply in the fall. Grain values have been falling hard recently. Interest rates are high so money is not cheap like it was. There are a lot of reasons for buyers to wait...and not a lot to step in.

All the more reason for manufacturers to get aggressive to bring those buyers forward...so be prepared.

Should you lock in fall '23 potash needs today?

Global

Sure doesn't feel like it is pressing to buy today. Things can change rather quickly but given the state of the market, seems like waiting may turn out rewards for buyers.

North America

Since we haven't really seen a summer fill price reset program yet and global prices are under question following China, I'm not excited to pull the trigger on fall needs. In addition, there is the cost of money to consider, the fact that corn values have fallen hard, the fact that we can delay applications if need be, the list goes on.

I'm not saying we bury our heads in the sand. In fact, I think more conversations with your retailers are needed as they can give a better viewpoint from a local perspective which is ultimately much more important. Once they get they "fill program" numbers, if you are having regular conversations, it is easier to be in front of it.

General global potash information

What has happened in the last 30 days?

China got a sweetheart deal...compared to India

Historically, India will secure their potash needs from Canpotex (a conglomeration of Canadian producers with Canpotex handling exports) and then be followed rather closely by China who does the same.

When India secured their needs, they locked in a price of $422MT CFR. While a bit higher than some thought (personally was thinking higher $300's but to each their own), it was the price set. Then the wait for the China sale began with speculation on the price. Many anticipated a lower value...but most were surprised by the amount lower.

It would eventually be reported that China had secured their tonnage at a full $115MT LOWER than India at a price of $307. There are surprises...then there was that!

Ultimately, this set the world bar and caused a lot of buyers to stop in their tracks. There has been plenty of spin in the marketplace to counter the report. "well, they are buying a lot of tons at once. If you buy that many, you can get that price as well." or "it is a longer term contract and you need tons sooner". Frankly, I would be lying if I said I have never uttered those words on a sales call in my past...I'm not proud of it!!

While some will say this was a one off event, I believe many will use this as a target and a major talking point for why prices should drop or why they will wait for prices to drop.

North America, be aware of logistics

I know, I know, I know. It is only July. There are 4 full months until November. We have moved so many more tons in a shorter time frame. I get it and I feel you...but hear me out.

For fertilizer, this is a 3 pronged logistical situation. Potash finished spring season very empty. So did phosphate. Frankly, so did and continues to be is urea. There is a lot of refill that will need to be done this summer.

That is not to say we cannot get it done. In fact, I have all the confidence in the world that it will get done and get done well. Let's just not get lulled into sleep in that confidence. 4 months is a long time...but it will fly by in a blink.

Do not pass up opportunities. Spring taught a lot of us that waiting until the last minute can come with some pains. I know that fall application for many can be delayed until winter or spring which further lengthens that logistical window. If you and your retailer are ok with that, then disregard. But if you are dependent on fall application, don't take your eyes off the prize.

Where are current values in relation to the past

NOLA/New Orleans Louisiana

Vs 30 days ago - -10% or approximately $40 lower
Vs 90 days ago - -3% or approximately $10 lower
Vs 6 months ago - -20% or approximately $90 lower
Vs 1 year ago - -53% or approximately $395 lower

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

Vs 30 days ago - -7% or approximately $33 lower
Vs 90 days ago - -5% or approximately $24 lower
Vs 6 months ago - -22% or approximately $114 lower
Vs 1 year ago - -47% or approximately $367 lower

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

Major spring run in N.A. reduced supplies – this could be an issue that drives typical basis higher for all fertilizers. After a solid spring run reduced inventories to very low levels, that will put pressure on the logistical side to get it refilled before November. There are already some "quirks" out there (i.e. low river levels, higher barge freight, rail issues, etc.). The longer buyers wait for lower prices, the more risk/stress that will be put on logistics. Unfortunately, some of us learned those lessons this spring.
World still operating without most Belarus exports - as one of the world's largest typical exporters, moving forward without most of her exports flowing means the global S&D is still tighter than it should be. It doesn't guarantee that prices will move higher but if there are future disruptions, the reaction will be faster and more violent than "normal".
Tension remains high regarding Russia – I just cannot stop talking about Russia unfortunately. Not as long as they continue to invade Ukraine. As the 2nd largest exporter in the world, they could upend the global S&D very quickly. This is another "low probability/high impact" situation. Even if they were to escalate the situation, the outcome would need to be that their exports are lowered. Simple sanctions may not be enough to change things. If the U.S. cuts their flow but they are still allowed to go to India (for example), then nothing really changes except the flows. Not counting on it, but certainly watching it.

Bearish Factors

China sale just set a target – the sale to China was such a low number that anyone that had been considering pulling the trigger on purchases quickly drew their hands back. Now, there are plenty that will say "they purchased a huge amount at once" or "that is a longer term contract". That's fine. They can spin it however they like. At the end of the day, it causes the market to pause and most fertilizer markets suffer on price when buyers pause..
Corn prices are falling – I sure wish this wasn't the case. I wish we were still see corn values where they had been the last couple weeks along with everyone hitting trend line yields. Unfortunately, that isn't reality. As corn prices have fallen, so to has the excitement for buying inputs. All of a sudden, spending money on the 2024 crop isn't as high on the list. For a product like potash whose demand can be more volatile (higher/lower application rates and fall/winter/spring application decisions), it can see impacts be even greater. I hope this lower corn price trend does not continue, but if it does, watch out.
Still haven't seen potash react after spring so action to come - largely, other than the Chinese sale, we haven't see the potash market really react after spring. On the price graph above, the only reason the last data point dropped was due to a trader willing to sell a barge at a lower price. It wasn't really a "market reset". That should mean the reset is still to come...if they wan the market to engage.

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.

Josh Linville’s focal points

Still dealing with a global potash market without Belarus - Belarus remains cut off from most of the potash world and yet, prices have plummeted. That is great news for buyers. However, it should cause one to wonder what prices will do if suddenly Belarus were to resume normal export flows. Doesn't seem likely today...but anything is possible.
Potash tensions should still be high with Russian fears - thru today, we have seen very little impact to Russia's ability to export potash which was one of the highest fears March/April of 2022. The potash market has been fortunate in that regard...but will it continue? Eyes will need to remain fixated on the ongoing conflict for signs going forward as it has the highest chance of sparking price ideas globally.
Otherwise, global potash market is moving back to normal...for now - assuming there are no other "road bumps", it seems as though the potash market is quickly moving back into historically normal ranges. OK, perhaps "historically normal" is a bit misleading. Current values are still high...but so to are grain prices.

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