Summer is coming quickly and hopefully so too will Chinese exports. If that plays out, the lowest demand period of the year is coming quickly and the world's typically largest exporter is coming back. That's a big one/two punch.
I continue to believe we will see softer phosphate prices ahead. There is a long period until the next large demand cycle and China returning will only highlight that point.
Global values start to fall as Chinese exports expected to resume
As I've mentioned many times in recent history, China is extremely important to the strength or weakness of the global phosphate market. As the historic leader of exports, their absence and presence is felt. In recent months/years, global phosphate markets have been priced high as China restricted exports in an attempt to keep domestic inventories plentiful and domestic values low. Now that it looks as though exports are set to resume, global values are starting to decline.
However, as with everything China, there needs to be a word of caution.
For starters, the world is still a bit tight supplied because of China's absence. It isn't as though the global S&D becomes oversupplied the first day China returns. It is going to take time and work to get back to normal. A lot of the price correction has to do with anticipation and emotion.
That brings us to the second point which is we never know what China is going to do. They were not going to return to the export market...until they did...but maybe they do not again. This is the problem with China in the phosphate market. They are the largest exporter in the world...and we play defense from an information standpoint. We can expect things to happen but must always remember how quickly it can change.
All in all, right now it does look like they are coming back. Reports/rumors/statements all lead to that scenario. Global price direction does the same.
Just have to continue to watch in case it changes.
Why does this matter for Australian farmers?
China is the world's largest producer and exporter of DAP/MAP historically speaking and is also in close proximity to Australia. If exports were to resume back to normal, it makes it much easier for Australian's to depend on more local supplies. The addition of these supplies also add competition which will hopefully lower price ideas.
Price comparisons
Vs 30 days ago - -17% or approximately $100 lower
Vs 90 days ago - -17% or approximately $100 lower
Vs 6 months ago - -8% or approximately $40 lower
Vs 1 year ago - -24% or approximately $155 lower
Morocco DAP price comparison
Number 1 global exporter in 2022
Price comparisons:
Vs 30 days ago - -1% or approximately $4 lower
Vs 90 days ago - -2% or approximately $10 lower
Vs 6 months ago - -4% or approximately $25 lower
Vs 1 year ago - -1% or approximately $5 lower
Black Sea DAP price comparison
Number 3 exporter of DAP/MAP in 2022
Price comparisons
Vs 30 days ago - -1% or approximately $6 lower
Vs 90 days ago - -2% or approximately $10 lower
Vs 6 months ago - -2% or approximately $12 lower
Vs 1 year ago - +3% or approximately $17 higher
China DAP price comparison
Number 2 global exporter in 2022
Price comparisons
Vs 30 days ago - -8% or approximately $48 lower
Vs 90 days ago - -10% or approximately $61 lower
Vs 6 months ago - -10% or approximately $58 lower
Vs 1 year ago - -1% or approximately $7 lower
Saudi Arabia DAP price comparison
Number 4 global exporter in 2022
Price comparisons
Vs 30 days ago - -13% or approximately $82 lower
Vs 90 days ago - -11% or approximately $63 lower
Vs 6 months ago - -10% or approximately $60 lower
Vs 1 year ago - -3% or approximately $18 lower
- China isn't guaranteed to stay in the market – just because the expectation is that they will return does not make it gospel. We have seen them do a 180 before and they could certainly shock the market if they deem it necessary. China is going to think of China...not the rest of the world.
- Global inventories are tight with China's absence – if China returns, it will be a huge win for global bears but it does not mean the global S&D corrects immediately. That takes time and does not happen on day 1. Until more time is allowed to pass, inventories will still be snug.
- Bearish global markets could have importers delay on last vessels – I know they sometimes get a bad rap but put yourself in the shoes of an importer. Global values are falling. Local buyers are likely not inclined to spend money right now. Doesn't feel good to pull the trigger on 30K tons, does it? If enough importers take this approach, you could see inventories get very tight. If that happens, it doesn't matter what the rest of the world is doing. What is available is a big premium.
- China should return – all indications are that Chinese exports are set to return. While it will take time for the global S&D fundamentals to get back to normal, the emotional impact will be immediate.
- Phosphate values are simply too high vs grain values – phosphate has remained very high for a very long time vs grain pricing. That remains in effect for today. There should be little excitement from the farmer side at current values. That should mean delayed buying which should/could put pressure on sellers.
- Demand slows way down going forward – the global outlook is bearish and demand is slowing down. If anyone has excess inventories left, now is the time to get aggressive to get them sold.
We believe that only looking at the flat price of either grains or fertilizer can be misleading:
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Only selling grain can hurt you if fertilizer prices rise substantially
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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:
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Spend 4 ton of grain to pay for 1 ton of MAP
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Spend 1.5 ton of grain to pay for 1 ton of MAP
When we compare the current ratio value against recent years, we start to see if we are high or low.
YOUR VALUES MAY LOOK DIFFERENT
- Chinese export programs - when the largest phosphate export does something, or doesn't do something, it affects the globe. China should be returning. That should be bearish. Unless they decide against it (like urea), then its bullish...isn't fertilizer fun!
- Grain price in relation to phosphate price - buyers are having to mind their p's and q's today more than they have in recent years. That means watching for opportunities and today, that phosphate/grain price opportunity is not there. Now, will it ever get there? Maybe not but this early in the calendar, it doesn't give any indication that a person should jump in early. If this mindset continues for a while, suppliers may have to budge.
StoneX Ratio Calculation
The ratio calculation is derived from Bloomberg historical grains values as well as fertilizer values from StoneX, NPKFAS, and Argus.
The calculation is simply dividing the fertilizer price by each grain price.
All data was sourced from StoneX unless otherwise noted.
