Farmer Fertilizer Focus - Potash

By: Josh Linville, Vice President- Fertilizer

Fri, 02 Jul 2021, 23:08

Potash

Josh Linville

Director - Fertilizer

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

I'm not sure how much more upside potential there is in potash but it certainly feels like there isn't much downside. Inventories around the world are tight. Demand remains high. While it may not seem like it, fall application is right around the corner.

Eventually, high prices cure high prices. Potash producers will want to take advantage of these types of values. They represent fantastic returns, especially when compared to a year ago. If enough producers start producing enough extra product, supply will eventually outweigh demand and prices will start to slide.

Unfortunately, it doesn't look like that is possible before November/December.

What has happened in the last 30 days?

Esterhazy mines flooded earlier than anticipated

The K1 and K2 mines in Esterhazy went down 9 months earlier than expected. This was due to increased brine flow. Basically, the mines started to flood beyond the capacity of pumps draining them. They knew it was going to happen eventually but thought that they would be able to stay ahead of it for almost another year. Unfortunately, it picked up to the point where they had to abandon the mines which means that approximately 1M tons of production was lost (what they could have produced in the next 9 months). The market was already tight following a spring run that emptied warehouses. Losing this much supply caused potash prices to jump immediately.

Colonsay will be brought back online...eventually

As a result of the Esterhazy mines going down, Mosaic made the announcement that they were going to bring their Colonsay mine back into production (it had been idled for some time). The news was seen as a positive result for those wanting more stability/lowered price for potash. However, questions abound as to how quickly they can bring it back online. Equipment needs to be brought in. Worse, personnel need to be moved (obviously, they didn't have crews living there just in case they were needed). All of this will take time.

Nutrien announced that they will produce an extra 500K this year

In the wake of Esterhazy mines going down and the restart of Colonsay being questionable, Nutrien announced that they would take measures to increase their production by 500,000 tons between now and the end of the year to help with the shortfall. This was a much needed and much appreciated step.

EU announced sanctions on Belarus

This has actually bee n a bit of a soap opera. Originally, the expectation was that the EU (and likely all her allies) were going to sanction everything in Belarus as a result of the political situation that has occured. Potash values jumped $40 - $50 higher on the news due to the fact that Belarus represents 15% of world potash operating capacity. However, shortly after, it was learned that only 20% of potash exports would be sanctioned with all major potash products left unscathed. The market is currently working to give up the price gains that were made.

Where are current values in relation to the past

For potash, we use NOLA/New Orleans Louisiana as our base point as it is the easiest spot to track.

Vs 30 days ago - +24% or approximately $95 higher
Vs 90 days ago - +57% or approximately $180 higher
Vs 6 months ago - +97% or approximately $244 higher
Vs 1 year ago - +154% or approximately $300 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

The EU and most of the world impose more strict duties against Belarus – if the EU imposes strict duties which encompass all potash fertilizer exports, the world gets much more snugly supplied really quickly. Belarus accounts for 15% of world production capacity. While I believe that their tons would eventually find its way into the world, short term there would be issues.
2022 acreage expectations continue to call on more and more potash demand– the USDA report further backed the notion that there will be significant potash demand this fall/spring due to expected 2022 crop mixes. Big demand = big prices.

Bearish Factors

The EU and world back away from any sanction threats against Belarus and cancel current sanctions – if the political situation cools, the market will no longer fear sanctions continue to be threatened and the loss of massive tonnages.
Sticker shock – as mentioned on other fertilizers, some farmers are going to be floored when they see this summers potash values for fall. Prices are 150% higher than they were last summer. The threat of reduced/delayed/skipped demand is real, I'm afraid, and it could have an effect on pricing.

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 to pay for 1 ton of potash
Spend 50 bushels to pay for 1 ton of potash

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 potash 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 potash 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

This was mentioned on phosphate as well but do not let emotion drive your decisions. I know that current potash values are extremely high. There is not way around that in the short term. as it seems these prices are here to stay for a bit. Make the decision that is best for your operation.
Use this as a learning opportunity. 12 months ago, grain values were no where near where they are today. However, the ratio is much worse than it was. For the corn/potash ratio, you were spending 50 bushels of corn to pay for 1 ton of potash. Right now, you are spending almost 100 bushels for that same ton.
We should start building soil potash levels when the price is cheap. Actually, we should build soil levels when the ratio is cheap. Build the levels so when we get to values like today, there is more to be mined and we can back off those application rates.

Fertilizers

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