Every fundamental factor that I watch is telling me that prices should rally over the next month or two.
Chinese exports are still non-existent. That is 5M tons per year missing.
Iran production is still offline. That is 4.8M tons of exports missing on an annual basis.
European production is still 75% of normal. That is 3+M tons of production missing/new demand.
All of those on their own would be enough to make me bullish. However, we are also contending with the conclusion of the India urea purchase tender. They should wrap up most excess product in the west thru February and into early March...when global spring buyers have to step forward. That means it will be a heyday for March ship tonnages.
Because of all of the above, I am still in the bull camp even with prices up like they are.
However, a word of warning/caution.
- Chinese exports are still non-existent...but their stockpiles are huge. Record high's by some accounts. Could this mean the government softens its export ban to allow some tons to flow? How will that be interpreted?
- Iran production is offline...but it isn't expected to be a long term situation. They should return sooner than later we think. If they return, does that do much to change things?
- Europe...I have no hope for Europe today.
If we see Iran/China return, it could change the emotion of the marketplace. Fundamentally, the global S&D remains tight and it isn't as though either country would ship their annual tonnage on day one. It would be a work in progress.
However, fertilizer likes to trade on emotion just as much as fundamentals. If they see either coming back, it could spark a sell off.
Still, I am ultimately calling for higher global prices in February and March. April is a bit to far to call today.
India gets limited tons in last tender, forced to retender
Every India urea purchase tender has a story and ultimately helps create a direction for the market.
Their last tender announced in December was no exception.
From the beginning, it was playing out to be a big one. When the tender was announced, it was with the added caveat that they were targeting 1.5M tons. 500K tons for East coast ports and 1M tons for West coast ports. When pricing information was released, the story went off the rails. For the west coast, a single offer came in nearly $12 lower than the next offer to set an aggressively low L1. The east coast...well, it was a mistake. A company submitted a $299 price which was $80+ lower than the next lowest price. The offer was supposed to show $399, but India was not in the mood to allow the correction so it became the east coast L1. For reference, India requires that all offers either decline or negotiate their offer price to the lowest/L1 offer value. This is why that value is so important.
In the end, the west coast received very few tons while the east coast received exactly zero. The company that submitted the $299 refused to supply the 50K tons associated with the offer. All other East coast offers refused to negotiate.
Quickly, the story was how quickly India would announce their next purchase tender...it took less than a month.
In late January, RCF was tapped to handle the highly anticipated tender. They came with the same details in that they were targeting 1.5M tons. 500K tons for East coast ports and 1M tons for West coast ports. This one saw offers at a much more manageable range...but still spread out as you can see below.
As I write this, it is being reported that only 558K tons have been agreed upon vs their 1.5M ton goal. While we are still waiting on final official results, there is little that makes us believe this tonnage total will change. That means they have secured just over a third of their expectations.
The main question folks have is "why didn't more tons agree to sell?" Frankly, our POV is that all other offers either did not have tons in hand to offer (which is why they were so much higher on their price) or that they believe they will have a better opportunity to sell at a higher price in the coming weeks when demand starts hammering the world.
Today, we are highly expecting another purchase tender announcement in the first few weeks of February. It is more likely that this shipment window will cover a large chunk, if not all, of March which will put them in direct competition with the rest of the Northern Hemisphere who is also buying to prepare for their spring seasons.
India has not been the cause of recent global urea bullishness. That has much more to do with production issues. What India has done is uncover the story. There is no surprises to their demand and it was already baked into global S&D's. However, when India falls this short on tonnage awards on back to back tenders, global manufacturers/long positions take notice...
What does this mean for farmers?
India is not the cause of global values moving higher. From my perspective, that comes from the lack of supply due to Europe/China/Iran.
India is the revealer of higher prices. Their back to back tender failures have revealed how tight global supplies are and have sent the global market into a bit of a buying panic.
For Australian farmers, the effect is the same for farmers all around the world. Replacement values are screaming higher and those higher replacement costs eventually make their way to the end buyer. Eventually, that leads to you...
Iranian production goes offline, helps spark global values
I spend a lot of time discussing China when I talk about global markets and with good reason. China typically exports between 5 to 5.5M tons per year which represents approximately 10% of the global urea export marketplace. When China is participating heavily, the world feels soft as players get fearful of the competition. When China is absent, the boogeyman is gone and so prices tend to build.
So if we believe China has that power with that footprint, it makes sense that we should treat Iran in similar fashion.
If you scroll up to the world's largest exporters, you will notice Iran sitting in 3rd place for 2023 with around 4.8M tons exported. In the global markets, Iran is typically talked about with an asterisk. Yes, their urea is the same analysis as all other global urea. Yes, their exports can add/subtract from the global S&D. However, with years of sanctions and concerns of their reliability, they are treated different. Many traders/countries will not do business with them. That creates a situation where Iranian urea values are a discount to other Middle Eastern region values. Still their export urea ton counts the same as any other export urea ton around the world, so when they go missing it gets felt.
And that has been the story.
Last month, Iranian nitrogen fertilizer production all but stopped due to gas supply shortages. While details of the "why" have been a bit fuzzy, we believe it comes down to 2 factors:
- Years of sanctions have not allowed materials/personnel to enter the country to keep gas infrastructures in top shape which may reduce supply capabilities.
- Iran is currently in their "winter" season which means temperatures drop. That causes residential demand to spike to stay warm. This surge of demand overwhelms their gas S&D and causes the government to slow/stop industrial demand in favor of its people.
Globally, supplies were already tight with Chinese exports not existing (more below) and European production still at 75% with fears rising it could get worse (again, more below). For every 30 days that Iranian production is offline, the world loses 400K tons that cannot be "made up" short term. This, combined with India laying the supply story bare, helped to finally spark price ideas significantly higher.
Now, we do not believe this will be a long term issue. We are expecting to see reports that production has returned in the coming weeks, but there are no guarantees to this. When they return, no doubt it will remove some of the worst fears in the market, but damage will have already been done and the calendar simply isn't the buyers friend.
What does this mean for farmers?
Even if Australia does not purchase urea directly from Iran, their supply missing still affects pricing.
Iran represents just a little less than 10% of the global export marketplace and are typically viewed as a non-entity as many nations will still not do business with them. Years of heavy sanctions will do that. Even if their product is sold as a discount, their tonnage counts just the same as every other ton in the world.
So when their supplies stop, the global S&D gets tighter and in this case, prices rally for every buyer on earth.
Chinese exports close 2024 well behind normal
As expected, China closed out 2024 with record low urea exports which played a huge part in leaving the global S&D extremely tight to start 2025.
For some back story, China's new approach began back in 2021. Prior to that year, they would typically export between 5 and 5.5M tons.
When late 2021/22 saw global urea prices skyrocket and fears of supply shortages gripped the world, the Chinese government stepped in. They realized how important urea was to their farmers and understood the risk the world was posing. With supplies tight, the fear from their perspective was that exports could decimate their own supplies and leave their farmers without product. In free markets, this would be allowed to happen as the best market wins.
China is not a free market...
Rather than run this risk, they opted to start restricting exports with two goals in mind:
- Ensure adequate supplies for domestic farmers.
- Put pressure on domestic values, putting their own farmers in better position vs the world.
Fortunately for Chinese farmers, the strategy has worked. Unfortunately for the rest of the world, the strategy worked and continues to be used today.
There was hope in 2023 that typical export flows were returning. While the year closed less than normal, seeing 4.25M tons be released was welcome...but that helped keep their values higher. 2025 saw enormous restrictions put into place and 2024 calendar year trade data reflects that only 266K tons departed. In perspective, this is 5M tons less than the market is used to. This leaves a massive hole in the global S&D and the world has been paying the price.
Now the question is what will happen in 2025.
On the one hand, there is reason to be hopeful. We have recently heard rumors/seen reports that Chinese stockpiles of urea are at record levels. This helps answer our question of where all the tons have been going because their operating rates have remained high. In a normal situation, we would think that the government would allow exports to return to help alleviate these massive stockpiles. If Chinese exports are allowed to return, it would add much needed supply to the world and take an edge off the current story.
On the other hand, the government should be caring more for its farmers than manufacturers. If they allow exports, it is likely that values will start to climb domestically which is in stark contrast to their stated goals. From their perspective, would you rather allow exports which helps several manufacturers or keep exports low and prices down which helps hundreds of millions of farmers?
Ultimately, it is China. We do not know what they do. We take a very reactionary position in terms of their programs meaning that we try to think thru the possibilities. While we do not know what route they will take, at least we will have a game plan for if/when one plays out.
Today, our stance is that exports will remain very restricted near-term which will keep global supplies tight and prices higher...but there is a chance they return.
What does this mean for farmers?
You guessed it, higher prices.
China is a huge part of global buying. When they are participating heavily, they have a bearish effect on the world as global traders/suppliers need to fear having their price undercut. However, when they are missing, the lid is lifted and prices move the other way.
We have never seen China export so few tons. It has left a gaping hold in global supplies that have left buyers scrambling to other production points. Those production points see buyers lining up and take their price higher. That forces some buyers to other production points...and the domino's continue to fall.
The end result...higher prices for all.
European production rates remain lower, fears rising it could get worse
This is a story that has been ongoing since late 2021, but it remains just as important now as it was back then.
Without diving into the whole history of it, Europe has struggled with nitrogen fertilizer production rates. Historically, they received the bulk of their gas supplies from Russia which helped keep their values low and production at 100%. However, Europe's push to green as well as Russia's threat and eventual invasion of Ukraine strained relations to the point where gas supplies stopped. It peaked when an unknown party attacked the Nordstream pipeline at an underwater spot. While questions still remain on who caused the attack, the answer does not change the conclusion: gas flows are still not existent.
That has caused Europe to become reliant on the rest of the world. While it has done a fine job of finding new trade routes, these fresh lanes come at a higher cost. We commonly track the Dutch TTF market for an overarching view, much like we watch Henry Hub for the U.S. / N.A. Historically, those values were in the single digit range but today have traded in the $10 - $15 area...and have been pushing higher.
These higher prices have caused European nitrogen production to suffer with current rates believed to be approximately 75% of normal. To put that into context, that equates to roughly 3.5M tons of urea production offline and roughly 2M tons of UAN production. Not only does that remove much needed supply from a global S&D which is already struggling, it pushes that demand to the rest of the world. It isn't as though farmers in those areas will just give up and farm without nitrogen. They are forced to go look for alternative sources of material which puts them in direct competition with other buyers.
This has been highly impactful for the global urea marketplace. Due to the high cost of production, Europe is, in my view, the swing global producer based on economics. Many across N.A. believe that urea values are set based on Henry Hub values. That viewpoint is correct, back when Henry Hub values were elevated. Today, they are some of the cheapest in the world. That keeps N.A. production at high levels and its urea continues to be priced vs the world. Today, global urea markets take a lot of their ques from Dutch TTF. If you look at the graph below, you do not need to be a statistician to see which gas values equates to urea values.
Recently, global urea values have been spiking due to tight inventories. It doesn't help that Dutch values have been climbing as well. The correlation remains high.
Some are hopeful that Trump will be able to find common ground and eventually peace between Russia and Ukraine. If he does, the world will celebrate...but a cautionary tale for those who will see it as a sign that Europe production is returning. Remember that the Nordstream pipeline was not just shut down, it was blown up under water. Those repairs are not easy and take time. Also, the rupture means that the inside of the pipe has been exposed to sea water for a long time. Very possible that we are not looking at a repair but rather a replacement. These things take time.
What does this mean for farmers?
Since Russian gas supplies to Europe ceased to exist and European production rates started to fall, global values have had a very solid correlation to European gas values. This includes Australian values, even if the effect is sometimes delayed on the downside.
European Dutch TTF values have slowly been climbing this winter. Fortunately, it is still in that area where production is unaffected but if it continues to climb and we do hear production impacted, no doubt global markets will move higher.
Number 1 exporter (as a region, not as individual nations)
Vs 30 days ago - 12% or approximately $43 higher
Vs 90 days ago - 5% or approximately $20 higher
Vs 6 months ago - 15% or approximately $54 higher
Vs 1 year ago - 10% or approximately $35 higher
Egypt
Number 4 global exporter in 2022
Price comparisons
Vs 30 days ago - 11% or approximately $43 higher
Vs 90 days ago - 7% or approximately $28 higher
Vs 6 months ago - 18% or approximately $67 higher
Vs 1 year ago - 11% or approximately $44 higher
Black Sea
Number 1 global exporter in 2022
Price comparisons
Vs 30 days ago - 12% or approximately $40 higher
Vs 90 days ago - 7% or approximately $25 higher
Vs 6 months ago - 14% or approximately $45 higher
Vs 1 year ago - 15% or approximately $48 higher
China
Number 9 global exporter in 2022
Price comparisons
Vs 30 days ago - -5% or approximately $14 lower
Vs 90 days ago - -13% or approximately $35 lower
Vs 6 months ago - -26% or approximately $84 lower
Vs 1 year ago - -32% or approximately $116 lower
- Chinese exports remain near zero - it is hard for the market to ignore China when they are exporting. They tend to be the global market boogeyman. That also means that when their exports are stopped, the market can run and that is where we are today. China historically represents around 10% of the global urea market. The issue is that there is very little indicating their return. Not impossible, but few signs so far.
- Iranian production remains offline - years of heavy sanctions has no doubt taken a toll on Iranian infrastructures. That and cooler winter temps which has increased public demand on gas markets have combined to shortages...and nitrogen producers are paying the price by having to stop. This is not expected to be a long term problem, but as long as it is, it is a loss of supply in an already tight supply market. They exported 4.8M tons in 2023, that means 400K tons are lost every 30 days.
- India wipes out February/early March tons - this is my main concern, especially for the west. It appears that India is going to wipe out most excess inventories in February and the first week of March. So western manufacturers are going to be relatively empty going into March when demand picks up. That is a lethal combination. Imagine what prices will do when big buying meets limited supply...
- Chinese stockpiles are heard to be building to record levels - recently, we have started seeing reports that Chinese urea stockpiles may either be at or above record levels as a result of government export restrictions. The problem is that operating rates are still high. Something has to give. It is possible that producers will be forced to slow production. The other possibility is that the government allows exports to resume which will not be seen as a bullish event globally. Right now, we do not expect exports to resume, but it is back in the realm of possibilities.
- Iran should come back sooner than later - Iran's production being offline is not expected to be a long term situation. This is just due to a short term gas shortage that should go away with repairs/warmer temps. When they come back, the damage will have already been done but fertilizer markets are funny. Sometimes emotion wins the day.
- The focus of the market turns from current tightness to late Q2/Q3 price resents - this is too early in the year for this to happen, but I'm struggling with a 3rd reason for why urea could soften!! Eventually, the market will shift away from demand/supply issues and will start to fear carrying product into the late Q2/Q3 period when values historically hit their low's. Again, this is February. This isn't something I expect in the next month or two, but is certainly in play after that.
We believe that only looking at the flat price of either grains or fertilizer can be misleading:
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Only selling grain can hurt you if fertilizer prices rise substantially
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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:
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Spend 135 bushels to pay for 1 ton of urea
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Spend 55 bushels to pay for 1 ton of urea
When we compare the current ratio value against recent years, we start to see if we are high or low.
YOUR VALUES MAY LOOK DIFFERENT
This is a work in progress section! We plan on looking at the relationship between Aussie grains and global price points (and hopefully Aussie specific locations, though that data is hard to secure, very protected). Big reason why we are still in the "trial" stage of this newsletter!!!!
- Iranian production rates/timing - Iranian production going offline, in partnership with the current India urea purchase tender, really helped the urea market find its footing in a bullish way. So if Iran played that part going up, would their return to producing have negative effects? While I do not think so, it needs to be watched because fertilizer emotions are a funny thing.
- Chinese exports flows - Chinese urea markets are at a crossroads. On the one hand, the governments strategy has worked. By lowering exports, domestic stockpiles are near or above record levels and domestic prices are some of the cheapest in the world. On the other hand, with stockpiles so high, they either need to start exporting or lower production rates. If exports begin, the immediate global S&D effect wouldn't be huge, but there is little way to describe the emotional damage. We do not expect them to return, but never say never.
- How spring buyers react to India locking up February/early March shipments - at this point, it is fair to believe that the western global urea market will be tightly supplied thru to the first part of March. India should lock everything up. That means that countries needing supplies for their spring season will all be competing for March ship tonnages. You know manufacturers will take advantage of this...
- How Australian importers approach this season for urea - if you are an importer, what do you do? Global prices are screaming higher. Do you go ahead and start putting in big layers today at higher prices for fear of even higher prices/tighter inventories in the future? Do you drag your feet in hopes of lower prices...but then run the risk of delays causing production to not be in place for the start of application. This is a tough call for importers and how they approach this cycle will play a big part in how prices get set.
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.
