Farmer Fertilizer Focus - Phosphates

By: Josh Linville, Vice President- Fertilizer

Fri, 04 Nov 2022, 13:08

November '22 PHOSPHATES

Josh Linville

Vice President - Fertilizer

Major global phosphate export location price graphs

I will have 2 graphs: one that lists historical pricing in short tons and one in metric tons so that everyone can read it in a form they prefer. All prices are listed in USD. All prices are FOB or priced at their origin.

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 thru 2022.

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

We are at the start of fall season here in North America. Decent widespread rains are moving thru the Midwest. December 2023 corn continues to hover around $6.20 - $6.30/bushel. Many farmers are wrapping up a decent harvest and with a lack of spending options on things like equipment and land, phosphate should see more cash thrown at it rather than pay taxes.

All of that said:

I continue to see phosphate values trailing lower for the short term.

Even though farmers need to spend some money before year end, I'm worried that phosphate demand is going to be lower for the 2nd year in a row. I'm also worried that typical fall applicators are going to drag their feet to winter/spring which could leave a demand hole in the fall/inventory carryover into winter.

Adding to this is the NOLA DAP futures market showing lower price ideas in Q1.

I've learned to never say never so I think we need to keep our heads on a swivel but right now, I see more paths to lower prices than higher.

Should you buy your fall '22/spring '23 phosphate needs?

If you are a fall applicator and are sticking to that program, you better talk to your supplier/retailer/coop VERY SOON.

I know I just got done saying above that I think prices will continue to drop. I stick by that POV (and probably will until the market proves me wrong once again!!). However, for those wanting to apply this fall, I am much more worried about logistics.

The cheaper prices referred to above are for future shipments. We continue to see prompt ship phosphate keeping a premium and that makes sense. Suppliers have a lot of money tied up in the product and they are trying to force that on retailers/farmers. The idea is that if you want cheap prices, you will have to wait for it. If you want product now, it will cost you.

Worse are logistics. You are likely fully aware of lower Mississippi River water levels impeding barge traffic (hopefully the rains coming thru will help for a bit). You are also likely aware of the pending rail strike possibly coming late November. Either one of these on their own merit would cause inland prices to remain high/push higher with logistical costs skyrocketing. The combination of the two would be devastating.

Retailers/coops are in the same boat as you. They see price ideas lower going forward. They do not want to get caught with a bunch of high priced inventory. Too many were around in 2008 and 2012. They saw values fall out of bed which caused people to lose their jobs and companies to fold. Suppliers are playing this round much closer to vest so the old method of showing up at the office and expecting product to show up tomorrow is out of date.

If you are sticking with a fall program, better to have physical product locked up rather than miss out.

If you are a spring applicator, lower prices should be coming

There are a lot of factors that are pointing to lower prices this winter/next spring. Hopefully, current and coming rains will help heal the river systems. Hopefully, rail owners and workers can come together and not strike.

There should be opportunities in the coming weeks/months to lock up lower priced phosphate.

That said, do not pass a profitable opportunity. If you can buy your phosphate, sell your grain and secure a profit you are happy with, that is the right answer. Lot of signs are pointing to lower phosphate price...but there are no guarantee's. Take your wins when you can get them.

What has happened in the last 30 days?

Tampa phosphate operations dodged the Hurricane Ian bullet

Fortunately for the phosphate market, it looks like there were no further surprises with Hurricane Ian. The storm shifted just south of Tampa which saved Mosaic's operations and loading capabilities.

Unlike Louisiana not long ago, there were no follow up surprises with production.

There will be some production losses but everything sounds like it will be within expectations.

A direct hit would have meant losing a tremendous amount of supply/production. We should count ourselves fortunate.

Chinese exports improving...but by how much and how long?

A surprise for the global phosphate market has been the subdued return of Chinese phosphate exports.

While still far off the 5-year average, many (myself included) believed that export volumes would be minimal. I've been surprised at the jump since June.

Unfortunately, I continue to think this is short lived. It is likely this will continue thru the remainder of 2022 but once 2023 starts, we believe another export ban will be put into place. Hopefully those rumors are unfounded but today, hard to argue against them.

North America logistics struggling

As you have already read/heard, North America logistics are struggling.

The lower Mississippi River has been suffering thru some of the lowest water levels on record. While the dredging operations have helped to keep avenues mostly open and river boat captains and crews working hard to navigate difficult channels, fertilizer shipments have been hampered.

For rail, a strike continues to be discussed. Workers are unhappy with agreements the unions put into place and are now threatening to strike on November 20th. This would be devastating for the continent as a whole, not just fertilizer.

Truck availability has been an issue for years. Industries have gone out of their way to run trucks as cheap as possible and have been surprised when many either go out of business or opt to run loads for FedEx/Amazon/etc. There simply are not enough trucks to make up the difference.

What this means is that even if you are seeing prices fall around the world or in places like NOLA, your inland price is likely not dropping and may actually be rising. This is because when logistics struggle, the market starts bidding for limited availability. The market takes advantage of that by moving their price higher until they reach a threshold.

Hopefully by December, we will be able to talk about how we averted both difficulties. Unfortunately today, we cannot do that.

Fall demand questions persist

We are on the front step of fall application in the Northern Hemisphere...and I still do not know what to make of fall demand.

Grain values continue to look solid. December 2023 corn continues to be rangebound in the $6.20 - $6.30 region. We continue to hear complaints of not being able to spend money on land or equipment. That should mean more love for phosphate. Lot of indications are pointing to solid demand in 2023 based on crop mixes.

Still, current phosphate prices are very high when compared against historic norms. Next years crop is likely to be one of the most expensive on record which could have farmers looking to make cuts. While we are getting a fantastic rain across the Midwest, there are still large swaths of North America that are struggling with drought. Couple all of this together with forward futures markets pointing to lower prices as well as farmers possibly delaying to winter/spring and we could have a very lackluster fall run.

We should have a better POV on what demand looks like by the time I put together the December newsletters. Today, I'm not getting a good vibe that demand will be great.

Still no change on the U.S counter vailing duty against Russia/Morocco

With NOLA DAP prices falling to close this week, N.A. is no longer the highest priced phosphate in the world. Morocco has reclaimed that title...but not by much.

There continues to be a lot of silence in regards to the counter vailing duty case against Russian/Moroccan produced phosphate. For a time, many organizations were lining up to fight against the duty in hopes of overturning it and allowing natural imports to flow once again.

The U.S. continues to effectively ban imports from Russia, Morocco and China which means 3 of the more important exporters in the world are cut off. This also means that Canadian farmers are suffering the same fate.

Where are current values in relation to the past

NOLA/New Orleans, Louisiana DAP price comparison

Vs 30 days ago - -6% or approximately $45 lower
Vs 90 days ago - -10% or approximately $75 lower
Vs 6 months ago - -21% or approximately $185 lower
Vs 1 year ago - -7% or approximately $54 lower

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

Vs 30 days ago - +1% or approximately $9 higher
Vs 90 days ago - flat to current values
Vs 6 months ago - -14% or approximately $131 lower
Vs 1 year ago - +10% or approximately $74 higher

U.S. Northern Plains Average price comparison

Vs 30 days ago - +1% or approximately $5 higher
Vs 90 days ago - flat to current values
Vs 6 months ago - -14% or approximately $130 lower
Vs 1 year ago - +10% or approximately $70 higher

U.S. Southern Plains Average price comparison

Vs 30 days ago - -1% or approximately $5 lower
Vs 90 days ago - -1% or approximately $7 lower
Vs 6 months ago - -14% or approximately $151 lower
Vs 1 year ago - +8% or approximately $63 higher

Morocco DAP price comparison

Vs 30 days ago - -5% or approximately $45 lower
Vs 90 days ago - -20% or approximately $187 lower
Vs 6 months ago - -36% or approximately $422 lower
Vs 1 year ago - -6% or approximately $48 lower

Black Sea DAP price comparison

Vs 30 days ago - -2% or approximately $12 lower
Vs 90 days ago - -20% or approximately $165 lower
Vs 6 months ago - -22% or approximately $190 lower
Vs 1 year ago - -19% or approximately $151 lower

India DAP price comparison

Vs 30 days ago - +5% or approximately $32 higher
Vs 90 days ago - -16% or approximately $146 lower
Vs 6 months ago - -19% or approximately $178 lower
Vs 1 year ago - -7% or approximately $57 lower

China DAP price comparison

Vs 30 days ago - -3% or approximately $23 lower
Vs 90 days ago - -23% or approximately $210 lower
Vs 6 months ago - -33% or approximately $345 lower
Vs 1 year ago - -6% or approximately $47 lower

Saudi Arabia DAP price comparison

Vs 30 days ago - +1% or approximately $10 higher
Vs 90 days ago - -18% or approximately $157 lower
Vs 6 months ago - -33% or approximately $354 lower
Vs 1 year ago - -6% or approximately $49 higher

Brazil DAP price comparison

Vs 30 days ago - -9% or approximately $60 lower
Vs 90 days ago - -32% or approximately $295 lower
Vs 6 months ago - -48% or approximately $573 lower
Vs 1 year ago - -25% or approximately $203 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

2023 overall demand looks solid – we still need more information regarding the 2022 harvest, a lot of the early indications are pointing to a solid mix of grain acres in 2023 that should mean big demand.
North American logistics stay bad / get worse – right now, it is raining in Kansas City which will help river water levels. However, one moisture event will not fix what is going on in the Mississippi River. If the river system continues to struggle and rail workers end up striking, what happens in NOLA will matter very little. Logistical costs could jump by way more than NOLA dropping.
Could lose China again starting 2023 – no one outside of a few people in China know what China is going to do but there are a few signs pointing to the government there putting into effect another export ban on phosphate starting 2023. While world prices have been falling, inventories are still tighter than normal and the government proved that banning exports helps to lower domestic values. If rumors turn out to be true and another ban put into place, that could turn this market.

Bearish Factors

The current trend is our friend – no way around it, since late March/early April, the global phosphate price trend has been lower.
Farmers likely to be looking to make input cuts to the 2023 crop – 2023 looks like it is going to be one of the more expensive crops to raise on record. Everything is higher priced. This could push farmers to make cuts to their phosphate applications. While I wouldn't expect this in prime farmland, this is certainly an option in some of the lower producing fields out there.
Fall applicators could wait until winter/spring - even if farmers decide to keep full application rates, they can certainly decide to wait until winter/spring in hopes of lower values. While this would pose a problem for winter/spring logistics, it would certainly cause price ideas to fall thru the fall as the market looks for someplace to go with inventories.

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 120 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.

Josh Linville’s focal points

I'm changing this going forward simply because I was struggling with what I should put here. Typically, I fill it with general statements that a lot of times you all do not need.

When I look at markets, I try to find the one/couple points that are most important to me that tell the story. That is what I will start doing on this section:

Chinese export levels - yes, how the world's largest exporter of DAP and MAP restricts or allows their flows have a major impact on global price ideas!!! If China continues to allow, or increases the allowance, of phosphate exports, then we could see prices continue to dip. If we see a reversal, also a distinct possibility, the opposite effect.
Fall demand - fall will tell the story. Will application rates return to normal or be cut again? Will fall applicators delay until spring or roll with the fall and wipe out inventories? Once we get thru fall, we will know.

All data was sourced from StoneX unless otherwise noted.

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