From my vantage point, it appears that global supplies should be improving.
- China appears to be resuming exports
- Morocco is having no issues that we know of
- Saudi Arabia is having no issues that we know of
- Russia is actually beating their 3-year average on exports
- U.S. has seen production suffer the last couple quarters but it appears to be improving
If current supplies are improving and current values are still high vs grains, I see this as a sign that values should continue to correct lower.
China phosphate exports improve in April...still far off normal pace
Bit of background before we dive into it.
Historically speaking, China has typically been the world's largest producer and exporter of DAP and MAP. However, during the lead up to the 2022 price spike for all fertilizers, the Chinese government started to intervene. Fearing global high prices and tight inventories, the government started to restrict exports in an effort to ensure lower values and better inventory supply for Chinese farmers. For the rest of the world, this was unfortunately somewhat successful. Now that global values and inventories have calmed down, many (myself included) believed that these restrictions would be removed and normal trade patters return. Unfortunately, that has not been the case. The government continues to play a role in determining what can and cannot happen...and that has global implications.
Fast forward to today. Unfortunately, the first quarter of the calendar year saw exports dragging far behind their 3-year average pace. Fear grew that they might become further secluded from the world which would cause global inventories to shrink and in turn, values to rally. Fortunately, April saw a surprising rebound.
Their cumulative yearly exports are only about half of where they should be, but April has served to provide hope. If this trend continues and China starts returning to normal rates, this will add uncertainty to global sellers which is great news for buyers.
Why does this matter for Australian farmers?
If Chinese exports can return to normal, then global supplies improve. If global supplies improve and demand remains unchanged, Econ 101 says that global prices should fall. If global prices fall and Australia is currently out of season, then Aussie values should also fall.
I hate using terms like "should" all the time but this is fertilizer. Normal things do not always make sense in these markets!!!!
Price comparisons
Vs 30 days ago - +6% or approximately $30 higher
Vs 90 days ago --15% or approximately $95 lower
Vs 6 months ago - -4% or approximately $20 lower
Vs 1 year ago - +16% or approximately $70 higher
Morocco DAP price comparison
Number 1 global exporter in 2022
Price comparisons:
Vs 30 days ago - -7% or approximately $38 lower
Vs 90 days ago - -8% or approximately $48 lower
Vs 6 months ago - -10% or approximately $580 lower
Vs 1 year ago - +4% or approximately $21 higher
Black Sea DAP price comparison
Number 3 exporter of DAP/MAP in 2022
Price comparisons
Vs 30 days ago - -5% or approximately $29 lower
Vs 90 days ago - -8% or approximately $42 lower
Vs 6 months ago - -8% or approximately $44 lower
Vs 1 year ago - +2% or approximately $9 higher
China DAP price comparison
Number 2 global exporter in 2022
Price comparisons
Vs 30 days ago - -3% or approximately $18 lower
Vs 90 days ago - -13% or approximately $79 lower
Vs 6 months ago - -13% or approximately $78 lower
Vs 1 year ago - +5% or approximately $25 higher
Saudi Arabia DAP price comparison
Number 4 global exporter in 2022
Price comparisons
Vs 30 days ago - unchanged or approximately $1 lower
Vs 90 days ago - -12% or approximately $74 lower
Vs 6 months ago - -10% or approximately $62 lower
Vs 1 year ago - +10% or approximately $47 higher
- Chinese exports could slow again – unfortunately, we cannot depend on China for rationale approaches to the market. If we suddenly learned that the government stepped in to slow exports again, I would not be surprised at all. If they disappeared from the market again, this would give other manufacturers a lot more confidence in moving prices up.
- Frantic Russian export pace could slow – in early 2022, when phosphate values were reaching their high, the world fear was that Russian phosphate exports would slow/stop as a result of the war. However, the opposite held true. We have seen Russian exports actually speed up. Now, if we suddenly started to see them removed more from the world, either by their decision or the worlds, global supplies would tighten very quickly and likely support global price ideas.
- Phosphate is still high vs a lot of comparisons – there are a lot of ways to skin this one but they all result in the same: phosphate is high priced. There are a lot of things going for the manufacturer and stable to higher pricing. However, if enough buyers say no thank you, eventually a day will come when they need to find buyers...with a price.
- If China continues to ramp up exports – while I'm not counting on this, I'm certainly watching for this. If we continue to see Chinese exports ramp up, that will add much needed supply on the world scale. It also brings back aggressive buyers that the rest of the world manufacturers tend to fear. China staying in the market would be a very good thing for global buyers.
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 4 ton of grain to pay for 1 ton of MAP
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Spend 1.5 ton of grain to pay for 1 ton of MAP
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
- Chinese export programs - unlike urea, it looks like China is pressing ahead with phosphate exports. This is fantastic news for world buyers...assuming they do not change their minds. Again, that is the unfortunate part of the world being so reliant on China for phosphate. The government can completely change the scope of the world market with a single decision that has nothing to do with the fundamentals of the marketplace.
- Global supplies - I continue to think that globally, the supply outlook has improved vs this time last year. Morocco/Saudi Arabia are both doing "ok". China started rough but is rapidly improving. Russia has been beating their 3-year average. U.S. has had some production issues but again, are rapidly improving. Hopefully we will see this trend continue and get back to "normal"...which will hopefully bring with it normal pricing.
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.
