Farmer Fertilizer Focus - Phosphates

By: Josh Linville, Vice President- Fertilizer

Mon, 03 May 2021, 19:10

Phosphates

Josh Linville

Director - Fertilizer

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

Unfortunately for buyers, it does not look like a big summer price reset is in order. Inland phosphate values are currently elevated in comparison to NOLA/Gulf of Mexico due to spring demand putting a lot of pressure on logistics. The "basis" is currently wide to compensate. While that piece will narrow/cheapen as we go into summer, NOLA/Gulf of Mexico DAP/MAP values appear to be pushing higher in relation to spring values. As long as corn values continue to hold or push higher, phosphate producers will anticipate higher demand which will move price ideas up.

What has happened in the last 30 days?

Spring has rapidly come to a close.

Early indications are that this was a very healthy spring for phosphate demand. Many had taken the approach of holding out on securing their needs until the last minute in hopes of prices dropping. That did not happen . Grain values continued to appreciate and even those that were steadfast in their decision to not purchase eventually gave in. The just in time demand caused logistics to be higher priced than normal. Higher grain values caused demand to rise as application rates jumped to ensure the possibility of the highest yield possible (because at these prices, who doesn't want to max their yield).

Summer fill programs have already began

Phosphate producers were quick to jump on the excitement of current grain price appreciation. Many in the marketplace were around in 2008 that saw corn values rise rapidly and also saw phosphate values go quadruple digits. With all the similarities to that period, demand has been itching to secure their fall/spring needs to make sure they are "ahead" this time around. Rather than drag their feet, producers were willing to start summer fill programs earlier than normal and at prices that are basically even money to now higher than seen in the spring.

Where are current values in relation to the past

We use NOLA/New Orleans, Louisiana as our point as it is the easiest spot to track on a daily/weekly/monthly basis. Keep in mind that inland values may change slightly different due to changes in basis/logistics.

Vs 30 days ago - +3.7% or approximately $20 higher
Vs 90 days ago - +1.9% or approximately $10 higher
Vs 6 months ago - +55.5% or approximately $200 higher
Vs 1 year ago - +104% or approximately $280 higher

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

Corn prices continue to trend higher – as long as corn prices continue to move higher, the market will view phosphate as a cheaper input. As it becomes a cheaper input, demand will rise in anticipation of higher demand.
Imports struggle to find their way to the U.S./N.A. – with the counter vailing duty case now complete, Mosaic now has some form of control over nearly 90% of world production capacity either by ownership (U.S./Saudi Arabia), lack of exports by that country (Brazil/India), or duties placed against them (China/Morocco/Russia). This leaves very few tons around the world with a "clean" path here.
Spring run emptied inventories – with most warehouses either empty or near empty, it means there is a tremendous amount of demand to just refill the system prior to fall. This gives phosphate producers more control over the market price discussion.

Bearish Factors

If corn values start to fall, phosphate could become unattractive very quickly – it is easy to justify purchasing high priced phosphate when corn values trend almost solely upwards. However, if prices stagnant or start to trend lower, that excitement will dissipate very quickly. That could leave the market very quiet and could put pressure back on the producers.
Imports start to rise – the duty case did absolutely nothing to change global production rates. All it did was disrupt otherwise efficient trade flows and cause U.S. buyers to pay those premiums. Imports will make their way to the U.S./N.A. marketplace. If those imports are large enough, we could see demand back off in anticipation of oversupply situations.
China starts exporting heavily again – it is easy to underestimate China's role in the marketplace. We cannot do that. They are the worlds largest producer and larger than countries 2, 3 and 4 combined. Their export pace has slowed significantly over the last several months. However, that can quickly change and cause the market to shift from "very tightly supplied" to "oversupplied" in a very short timeframe.

Phosphate values are higher. grain values are higher. are we better or worse off than where we were?

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 100 bushels of grain to pay for 1 ton of phosphate
Spend 60 bushels of grain to pay for 1 ton of phosphate

When we compare the current ratio value against recent years, we start to see if we are high or low.

Pay more attention to the horizontal dotted line as it compares the current phosphate price against new crop values.

Very quickly, we start to see if we are high/level/low vs previous years.

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.

Josh Linville’s Thoughts

We all wanted to see summer phosphate values drop tremendously. That does not look like it is going to happen. At least not right now. The combination of tight inventories and increasing corn values have the producer in the drivers seat for pricing. Could it happen in the coming months? Absolutely. We could also see values continue to rise.
If you are going to secure your fall phosphate needs in the coming weeks, PLEASE consider locking in the grain at the same time. This is a very high risk market we are currently in. Today, you may view phosphate prices as relatively solid given grain price direction. However, if you lock in your phosphate today and corn starts to give up all of its gain, that price that looked great is going to keep you up at night. This is exactly why we use the ratio approach.

Fertilizers

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