September '24 Farmer Fertilizer Focus - Potash

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.

Global

There really isn't much to say new about potash.  The outlook remains solid.  

While the Canadian rail strike story needs to be watched, so far it seems to have a minimal impact on shipments (hopefully that continues).

Russia continues to export heavily with more production coming.

Laos improvements continue to help build production levels.

Belarus could still return to former glory.

While there are certainly things that could happen to upset the apple cart, we continue to see a relatively flat potash market going forward.  Supplies are very good today and look to improve in the future.  A very well supplied market typically has little reason for values to move significantly outside of Black Swan events or logistical issues.

North America

Same as above.  We need to continue to watch the Canadian rail strike situation very closely.  It is very hard to detail how huge an impact a rail work stoppage that lasts weeks/months would be to the Canadian government.  U.S. farmers, you are not alone.  85% of the 9M tons of potash that was imported to the U.S. in 2023 came from Canada.  However, today that sort of a work stoppage appears unlikely.

Aside from some bumps here and there due to logistics, potash looks flat.  Suppliers appear plentiful and the 2025 crop mix points to solid demand.  When looking at potash vs grain values, it is on the lower/normal end of recent years.

There just isn't a lot to get excited about today.

Canadian rail strike

Let's hit on the elephant in the room which is the Canadian rail strike.

This is a story we have been watching/talking about for longer than I like.  While we have always said a work stoppage was possible, it was a very low possibility and the hope was that negotiations would be successful for both sides and normal shipments continued.

As the saying goes, hope is not a strategy.

Late last week, negotiations between the CP/CN railroads and their unions broke down.  At the cutoff time, the railroads blocked workers from coming in and an official work stoppage was in place.  It sounds as though a lot of the industries reliant on rail (it makes up a lot for Canada) had scaled back or stopped expecting shipments to occur which was a positive step but any slow down/stop was going to hurt.

Fortunately for the Canadian economy (not so much for unions who felt their negotiation power was impacted), the government stepped in and forced work to resume.  The work stoppage period did not last very long, but the impact was there.  Even worse, the story is not done.  The unions are angry at the government and are threatening another strike/work stoppage.  I cannot say I know if/how this process would work, but the talking points show that the story is not done.

So what does this mean for potash?  Take a look at the map below?  All the potash production is centered in the country.  That means a HIGH reliance on rail to move the product.  If we see another work stoppage AND that period lasts a while, potash could have issues.  In 2023, Canada exported 23M tons.  In another format for those thinking truck can fill the void, a unit train typically consists of 110 cars.  Now, Canada has different regulations for truckers so may be able to haul more per truck but in the U.S., 25 tons per truckload is the standard.  That means it takes 4 trucks to equal a railcar.  For a 110 car train, that is another 440 trucks on the road.  Not only that, but we are not talking about a short 2 hour round trip.

All this to say that hopefully this will not be an issue.  Hopefully, negotiations are successful, contracts are signed and we put this in our past.

Now, go back and reread the "hope is not a strategy" line.

What this means for farmers

For potash, a Canadian rail work stoppage for an extended amount of time would hurt (prices higher).  Mines would likely have to curtain production without rail to move product out of the way.  Exports would crawl to a stop without new inventories being put into sheds for loading.  Supplies being lowered would tighten the global S&D.  Logistics hurting would likely rally inland values.

It wouldn't be good.

Outlook continues to point to solid supplies globally

Aside from the Canadian rail strike story, the outlook for potash remains solid. 

Canada looks like it will increase its production capacity over the next few years.

Russia is understood to be increasing its production capacity over the next few years.

Belarus is still making gains on its export capacity and is still short of what is considered normal.

China continues to invest in Laos to increase their production capacity.

Overall, it sure looks like global production/supply is going to grow at a decent clip vs demand.

What this means for farmers

This is a good thing.

A market that is very well supplied to oversupplied should see prices remain lower and much less volatile.  While it doesn't mean that prices cannot rally, it certainly makes it harder.

With fertilizers always doing what they do, it is nice to have one input that looks to work in the buyers favor.

Potash price still solid vs grain values

Speaking of solid supplies and hopefully continued solid pricing, let's talk about how potash looks compared to grains.  As I always do, I focus on corn but take a look below at all the ratio charts vs potash.

As a quick recap for the new subscribers, I am not a fan of flat prices.  Now, I like $7 corn a lot more than I like $3 corn, but that doesn't mean $7 corn is the best value when looked at vs potash.  I try to approach farm marketing like manufacturers do.  They do not try to call the low/high of each market, most look for when the value between them is the best.  For farmers, this means looking at it as "how many bushels of corn am I spending to pay for one ton of potash".  

So, if I asked you "would you rather spend 60 bushels of corn to pay for a ton of potash or 120", which would you pick?  It isn't a trick question.  60 is right.  That is because it is a better value to you.  You are keeping more bushels to market for a profit, to hedge with, to accidently spill on the ground right in front of your deer stand....

From that narrow perspective, take a look at the graph below.  Potash is pretty well priced in relation to corn.  It continues to float around the low 60 bushel range which is historically pretty solid.  Yes, I would love for it to crater down to 50 or below, but today isn't bad.  

Now, this only works if you do both sides.  If you only buy the potash, do nothing on corn and the price of corn falls, that hurts and worsens the ratio.  If you only sell the corn, do nothing on potash and it rallies, same thing.  It is an approach to consider.

NOLA/New Orleans Louisiana 

Vs 30 days ago - unchanged vs last month

Vs 90 days ago --10% or approximately $30 lower

Vs 6 months ago --14% or approximately $45 lower

Vs 1 year ago - -18% or approximately $60 lower

 

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

Vs 30 days ago - unchanged vs last month

Vs 90 days ago - -5% or approximately $20 lower

Vs 6 months ago - -9% or approximately $36 lower

Vs 1 year ago - -12% or approximately $48 lower

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.

 

 

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.