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August '23 Farmer Fertilizer Focus - Phosphates

By: Josh Linville, Vice President- Fertilizer

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Major global phosphate export location price graphs

I will say this now and will say it going forward to eternity:  these are the flat price graphs for each individual location.  Your price where you are is going to be different.  There are logistics.  There is the cost of storage/interest/insurance/etc.  These graphs should not be taken as "it shows the price at $700,  why isn't my price $700".  These graphs should be used to give an appreciation for price movements.

All values are in metric tons and USD currency.

image 76994
 
What everyone wants to know first, what do we think will happen going forward
Global
There has been a slight uptick in global values in the past couple weeks with both Russian and Moroccan producers able to get higher netbacks.
However, Chinese exports continue to pick up pace and as the worlds largest producer and exporter of DAP/MAP, that changes the S&D dynamic.
Values cannot go down forever, but current values still feel a bit elevated given the return to normalcy.
Honestly, this is a bit of a coin flip.  Values have been down for so long and demand staying away to cash in on the trend that we could see a near term uptick.  However, longer term, if the world continues toward normal it is hard to see values going up by much.
North America
While the global outlook may be long term bearish, that doesn't mean N.A. has to follow dollar for dollar.  Today certainly proves that point.
The U.S. counter vailing duty rate is still in effect which means 3 of the largest exporters of phosphate around the world cannot come directly...or have to pay the duty.  With N.A. inventories very low coming out of spring, that puts a lot of strain on the N.A. based manufacturers to refill the system which is why we are seeing prices jump hard the last couple weeks.  On another flip side, U.S. NOLA values have screamed higher to a point where Morocco can send product, pay the duty, and STILL be a better netback than other locations.
Like the world, it is a bit of a coin flip.  I can see values higher near term as tight S&D situation is made worse by nearby application demand and Upper Mississippi River winter closure looming.  However, longer term, I could see imports start to pick up and spook values.
Should you buy your fall '23 phosphate needs?
If the current values work for your operation/region/etc., then that is your answer.  Your local market needs to be considered as things like supply availability, demand timing and logistical issues can change the view.  Just because we see the market strong or weak going forward does not mean it will translate to where you live.  We are all a part of the world, but we live at home.
Global
Values are down significantly from this time last year and grain prices are still holding.  If you have any doubt about your ability to apply everything in the winter/spring and the current values work, I think leaning into purchases make a lot of sense today.
North America
Nearby demand simply doesn't have a choice.  If imports start to pick up, they will likely not be seen until Sept/Oct.  If your demand is coming in the next few weeks or you have to use the Upper Miss River to get tons in place, better to have those conversations today.
For November/December or winter/spring demand, I'm struggling with current values...but you might not be seeing current values.  There was solid uptake on fill from a lot of retailers and we have not seen the inland prices up like the replacement market.  I.e., you might be in a lot better shape...and even current replacement values are not terrible with current grains.
Talk with your local retailer.  Walk thru the values.  Walk thru the logistical fears (or lack of).  This is a case by case and region by region decision.
CME Futures settlement indications

While the fertilizer futures market is far from as liquid as its grain counterparts, it is still active and gives us an insight into what the market is thinking.

Please note that the values below can and will change daily.  This is merely a look at where they are as of writing:

 NOLA DAP
  
September $507.50
October$495.00
general global dap/map information
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What has happened in the last 30 days?
Next up on deck for major phosphate producers - Norway!
Anyone who called Norway becoming a major phosphate manufacturer and global power in the years to come, please step forward to claim your prize!!!
In recent months, Norge Mining had announced the discovery of phosphate reserves in Norway.  However, the size and scope was still unknown so it was not discussed much.  Now, it has been announced that 70+ billion (with a b) metric tons of phosphate rock have been found.
Assuming there are no blockages from environmentalist or government players, this could become a new major source of phosphate and could disrupt global trade patterns.  There will still be a decent amount of time before the first ton of finished goods is ready, but the announcement and expectation are sure to weigh on minds.
Eurochem threatening to mothball Lifosa plant due to sanctions
One of the biggest pushbacks from the world market following Russia's invasion of Ukraine has been heavy sanctions on the Russian government as well as Russian based companies in an attempt to place pressure on the country.  One of those companies that have been under the thumb of sanctions has been Eurochem.
This company owns a phosphate production facility in Lifosa, Lithuania.  While the plant sits in a country in good standing with the Western world, Eurochem does not and as such has suffered.  Effectively, they are threatening that unless sanctions are removed, they will shut down the mine.
How this plays out will be interesting.  On the one hand, this shows that sanctions are working as it is impeding Russian companies ability to operate.  On the other, if this plant stays down permanently, it reduces the supply of phosphate for the world.  It isn't an enormous facility, but every little bit helps and hurts.  Another way this plays out is that we see Lithuania take possession of the facility and gift or sell it to another company in good standing.
Regardless the path forward, it will be interesting to see how this plays out.
India/Brazil imports remain ahead of pace
As the world's two largest buyers of phosphate, it is important to note where they stand on imports.  
So far, both are ahead of pace.
Brazil, on a calendar year perspective, is just ahead of their 3-year average thru June.  They had been well ahead of their typical pace but slowed in June.  No doubt due to plentiful inventories.
India is several hundred thousand tons ahead of the 3-year average for their fertilizer year.  Expectations are that their demand will remain solid as the Monsoon season has been solid.  However, like seen with Brazil, it certainly would not surprise us if they slowed their purchase pace for a month or two.  Especially, if global values start to rise.
There is nothing overly alarming about either countries import pace.  Just worth watching due to the fact that their demand...or lack of demand, can sway market opinion.
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Chinese exports continue to gain steam
As the world's largest producer and exporter of DAP/MAP, Chinese export flows might have an impact on global pricing!!
Since the Chinese government has lifted export restrictions on phosphates, there has been a resurgence of material flowing to the world which has helped prices fall.  Thru June, exports are still 700 - 800K behind the 3-year average, but still well ahead of where they were June 2022.
Chinese export participation adds a lot of material to the global S&D and should continue to be watched.  It doesn't guarantee that values will fall.  It certainly adds to the bear factors.
image 77062
North America fighting thru tight supply situations
One of the big stories from the spring was how tight the N.A. phosphate inventories got.  Typically, as the market moves toward summer months, sellers get aggressive to dump their remaining stockpiles before demand fully goes away.  Big reason why prices tend to fall June/July.  However, this year bucked that trend and values rose coming out of spring.  Effectively, it was not a situation where seller were competing.  Rather, remaining demand had to compete for the few remaining tons left in the system.
That situation has carried over to today.  Unfortunately for demand that is coming in the next several weeks (wheat demand / Upper Miss River closure), time is running out.  The tight inventory situation has not improved greatly as imports are not showing up as a result of ongoing duty rates against Russia/Morocco/China.  That has caused N.A. values to start rising significantly...which has created a new storyline.
With NOLA DAP being a huge premium to other world values (MAP being significantly higher still), a possible arbitrage opportunity may open for Morocco.  During the last duty review, OCP/Morocco saw its duty rate drop from approximately 20% to a current 15%.  Still a large duty percentage, but every point counts.
Today, it is possible for them to ship product to the U.S., pay the duty, and still be a better netback price than their alternatives.  So why wouldn't they do that?  They have been fighting this duty for its life.  A large part of the argument is likely "with duties in place, we cannot ship product to lower values and help the U.S. farmer".  Now, if they were to start slamming vessels full of DAP and MAP into the U.S., that argument no longer holds water.  Is it better for them to take advantage of the situation today and possibly lose any footing that had been gained or skip the import chance and keep fighting the good fight.  Honestly, I'm not sure.
We are dealing with a U.S. marketplace where MAP is an enormous premium to DAP.  If you are a typical MAP user, have a conversation with your retailer about options.  Can the blend be switched to DAP with no changes/risk?  Do you need to stay with MAP?  The phosphate market is begging MAP users to switch...but not every operation is the same.  Have that conversation.
image 77066
Where are current values in relation to the past
NOLA/New Orleans, Louisiana DAP price comparison
Number 5 global exporter in 2022
image 73041

Price comparisons

  • Vs 30 days ago - +12% or approximately $55 higher
  • Vs 90 days ago - -22% or approximately $140 lower
  • Vs 6 months ago - -21% or approximately $135 lower
  • Vs 1 year ago - -34% or approximately $255 lower

image 76995

U.S. Midwest Average (using multiple points across Midwest) price comparison

  • Vs 30 days ago - -2% or approximately $11 lower
  • Vs 90 days ago - -21% or approximately $147 lower
  • Vs 6 months ago - -19% or approximately $131 lower
  • Vs 1 year ago - -31% or approximately $256 lower

image 76996

U.S. Northern Plains Average price comparison

  • Vs 30 days ago - -9% or approximately $49 lower
  • Vs 90 days ago - -29% or approximately $211 lower
  • Vs 6 months ago - -26% or approximately $185 lower
  • Vs 1 year ago - -37% or approximately $305 lower

image 76997

U.S. Southern Plains Average price comparison

  • Vs 30 days ago - -10% or approximately $55 lower
  • Vs 90 days ago - -30% or approximately $225 lower
  • Vs 6 months ago - -26% or approximately $184 lower
  • Vs 1 year ago - -37% or approximately $300 lower

image 76998

Morocco DAP price comparison

Number 1 global exporter in 2022

image 73042

Price comparisons:

  • Vs 30 days ago - -1% or approximately $4 lower
  • Vs 90 days ago - -18% or approximately $102 lower
  • Vs 6 months ago - -30% or approximately $207 lower
  • Vs 1 year ago - -51% or approximately $494 lower

image 76999

Black Sea DAP price comparison

Number 3 exporter of DAP/MAP in 2021

image 73043

Price comparisons:

  • Vs 30 days ago - -1% or approximately $3 lower
  • Vs 90 days ago - -13% or approximately $66 lower
  • Vs 6 months ago - -30% or approximately $193 lower
  • Vs 1 year ago - -47% or approximately $401 lower

image 77000

India DAP price comparison

Number 1 global importer in 2022

image 73044

Price comparisons:

  • Vs 30 days ago - -1% or approximately $7 lower
  • Vs 90 days ago - -18% or approximately $97 lower
  • Vs 6 months ago - -32% or approximately $213 lower
  • Vs 1 year ago - -52% or approximately $483 lower

image 77001

China DAP price comparison

Number 2 global exporter in 2021

image 73045

Price comparisons:

  • Vs 30 days ago - -2% or approximately $8 lower
  • Vs 90 days ago - -16% or approximately $84 lower
  • Vs 6 months ago - -30% or approximately $195 lower
  • Vs 1 year ago - -52% or approximately $478 lower

image 77003

Saudi Arabia DAP price comparison

Number 4 global exporter in 2021

image 73046

Price comparisons:

  • Vs 30 days ago - +3% or approximately $16 higher
  • Vs 90 days ago - -15% or approximately $81 lower
  • Vs 6 months ago - -30% or approximately $203 lower
  • Vs 1 year ago - -49% or approximately $456 lower

image 77004

Brazil DAP price comparison

Number 2 global importer in 2021

image 73048

Price comparisons

  • Vs 30 days ago - +10% or approximately $45 higher
  • Vs 90 days ago - -17% or approximately $98 lower
  • Vs 6 months ago - -28% or approximately $183 lower
  • Vs 1 year ago - -49% or approximately $465 lower

image 77005

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
  • Slight price bump higher could bring demand forward – let's face it, global values have been falling for a LONG time.  That means demand has been in a position where it can sit back and wait.  Now, with prices low and some values showing an uptick, this could spark a lot of global demand to rush forward to take advantage.  Enough of this happens and you could see values start jumping.
  • China still not back to 100% exports – even though they are taking solid steps toward normalcy, this years export total is still behind normal.  That means global S&D's remain a bit tighter than they would be.
  • U.S./N.A. inventories incredibly low coming out of last spring – this will continue to be an issue thru fall.  We ended that empty.  That means it will take a Hurculean effort to get everything refilled in time for coming demand.  Even if we see NOLA values fall, we could see inland prices higher.
Bearish Factors
  • Grain values struggling to hold – as I write this, I'm looking at corn values that have dipped pretty significantly.  I'm not saying that it is such a hard drop that farmers should completely reconsider their approach.  The outlook is still good, but as grain values drop, so does confidence in the market.  If demand retracts, values could fall.
  • China IS on the road to normalcy – no, they are not back to normal but they are returning and that will have global traders and manufacturers on notice.  The more they return, the more bearish things get.
  • Arbitrage opportunity should open for Morocco to target U.S. – one of the big problems for U.S./N.A. is the lack of import options.  That is why MAP is an enormous premium to DAP.  However, with NOLA values where they are, if Morocco decides they could resume shipments.  If those shipments start to arrive, it will gut a lot of the current bullishness.
Where are the current phosphate/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 150 bushels to pay for 1 ton of DAP
  • Spend 80 bushels to pay for 1 ton of DAP

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 DAP 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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image 77007

image 77008

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image 77010image 77011
image 77012
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image 77014
Josh Linville’s focal points
  • Global trade flows - the U.S. really has things mixed up right now as it continues to effectively block imports from Morocco/China/Russia.  That means N.A. values are elevated and other global demand points are lower as they become the new home for offset tonnage.  Eventually, the market will return to its normal/efficient patterns...today doesn't look to be that day.
  • Chinese export flows - China is the global phosphate boogey man.  Makes sense since they are the biggest and badest player on the block.  The more their exports pick up, the looser the global S&D gets and the more prices could fall.  However, watch the other side.  If the government steps in, we could lose them just as fast.
  • North American S&D - for North American buyers, it is all about timing.  For wheat areas and locations that need the Upper Mississippi River for logistics, time is running out and unfortunately, it should be more of a supply confidence conversation than price.  However, the longer you can wait for your product, the better the outlook.  I cannot ask you enough to have that local conversation.  Your retailer is in just as bad a spot as you are.  Better to talk thru everything than not.

All data was sourced from StoneX unless otherwise noted.

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