Farmer Fertilizer Focus - Potash

By: Josh Linville, Vice President- Fertilizer

Mon, 01 Nov 2021, 20:08

POTASH

Josh Linville

Director - Fertilizer

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

This is a tough one. Right now, I continue to lean toward prices continuing to hold or push higher as we get thru fall/winter and into next spring. That is due to tighter than normal global inventories, demand still expected to be high and no signs from any of the 4 major producing regions that they will be ramping up production to gain market share which could ultimately lead to lower prices.

On the other hand, the last time we saw current grain/potash ratio values near this level was in the 2008 period. During that time across the U.S., we saw potash demand DOWN 40% with most of the loss being attributed to demand destruction. If that happens again this fall, we will go into winter mostly full which would leave very few holes to fill for producers.

All, it is a toss up but with the way most other fertilizer products appear to be moving higher this fall/winter, I'll continue to lean bullish until proven wrong. I would be more than happy to be proven wrong!

What has happened in the last 30 days?

It has been QUIET

Like, really quiet. Tensions had been flaring in the Belarusian region (approximately 16% global operating capacity for potash) but that has simmered down (still need to watch). North American values had been skyrocketing but those have gone quiet in the last 30 days. At the beginning of October, potash demand was expected to be low this fall due to low corn values but we have seen corn rallying in the last week which may put more money in the farmers pocket.

We will have a LOT better idea of where potash values are going by the time we send out the December newsletter. By then, we will find out if fall demand was there or if it disappointed sellers. We will hopefully get a better read on the political situation in Belarus. We will hopefully start to hear whether some of the idled Canadian production/mines that were expected to come online actually happen.

I really wish I had some deeply insightful views regarding potash. Unfortunately, like so many others out there, I am in wait and see mode.

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 - +3% or approximately $20 higher
Vs 90 days ago - +24% or approximately $131 higher
Vs 6 months ago - +116% or approximately $365 higher
Vs 1 year ago - +215% or approximately $464 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

Current inventories are tight – this is basically a blanket bull factor for every fertilizer product right now. Unfortunately, it still holds true. We came out of last spring low on inventories. We lost good amounts of production in Canada. The world is tighter than normal which is helping to continue support pricing.
Corn continues to rally – for a long time, Dec '22 corn values had been stuck in the $5 - $5.30 range. At those prices, A LOT of acres were going to struggle with cash flows and one of the first input victims was going to be potash. Now, Dec '22 has rallied to $5.55 and very well could see more upside potential. With harvest still going, the farm gate is getting more money for every bushel which will "need" to be spent. If potash was the first to see demand destruction, potash could be the first to see demand building.
Big harvest usually means big nutrient reductions – if you want to raise a big crop, you cannot have any fertilizer level too low in the soil. You can maximize your N, P, micro's, etc. but it will mean nothing if potash falls short. With Dec '22 corn values continuing to rally, there will be more and more pressure on the farm to maximize '22 yields.

Bearish Factors

2007/08/09 period saw potash take the biggest demand hit – those who do not learn history are doomed to repeat it...or something like that. During this period, potash demand took the biggest hit of any fertilizer with a 40% reduction. While part was due to acreage demand drops, most was tied to demand destruction as farmers looked to save money. Do not think for a moment that it cannot happen again.
Mother nature might say no – if you have farmed for more than 5 minutes, you know that weather makes most of your decisions for you. Unless you are willing to fly your potash onto the fields, the weather can turn adverse and completely ruin the fall season which would leave inventories high going into the winter months. That would weigh on values.
Still run the risk of producers ramping production to take market share – this doesn't look likely (they probably would have done this already) but we need to watch for signs that producers are ramping up their production rates. High prices cure high prices. Sometimes by demand destruction. Other times by producers oversupplying the marketplace.

Where are the current potash/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 potash
Spend 60 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.

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

Do not let your anger of high potash values hurt your yield potential in 2022. I know that the first thing you want to do at these values is cut your application rates. I fully understand and for many of you, that might be a viable option. However, if you plan to cut your rate and that reduces your yield potential next year by more than you save, you may have hurt your operation. I'm not here to tell you what to do. You are the boss. I'm only asking you to keep an open mind on the full scope of your farm.
If you are changing your patterns (normally apply in the fall but will wait til spring / going to cut your rate significantly / change your planting patterns / etc), TALK TO YOUR SUPPLIER. The fertilizer industry has always done a very good job of making product show up at the last minute. I'm afraid that if we expect that this fall, we might be sorely disappointed. There is nothing wrong with changing/reducing application patterns...if you talk to your supplier. Let them know what you are doing/not doing so they can make plans.

Fertilizers

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