The world's largest buyer is ahead of average on imports. The world's largest exporter is doing much better than last year and appears to be taking steps to resume normal practices. Current values appear high vs not only historical values but also against many grain values.
Barring some new unseen event, it is hard to be anything but flat to bearish going forward.
World's largest buyer (India) remains ahead of schedule...but slowed down
If you look up on this newsletter, we have the top 10 importing countries in the world listed. India is number one and it isn't a close 2nd. Given that, how they are purchasing (or not purchasing) can go a long way in determining global price directions.
For a few months now, we have been discussing and pointing out just how far ahead India was on their import pace. On its own, it is impressive. When considering they did the same thing last year, I started to wonder how long they could keep this pace without becoming overfilled. The idea was that after hitting a certain threshold, they would have to slow down because there is just no other place to go with it.
They may still have room to fill more product, but we did see them slow their pace in the month of August (most updated "official" information available).
The slow down in August by itself was not enough to turn the phosphate market on its head. But what will happen if September and October show the same? If this continues for a bit, manufacturers may start getting a little more aggressive on their price idea...and it only takes one to start the fall.
It would be irresponsible and far too early to say this is the beginning of the end of high global phosphate values...but it is a step in the right direction.
World's largest exporter (China) continues to improve on last year
If we are going to focus on the world's largest buyer for price direction, it makes sense that we do the same for the largest exporter.
"But Josh, the largest exporter is not China. It is Morocco." If that went thru your head, you deserve a gold star for paying attention!!! Morocco was the world's largest exporter in 2022. That was largely because the Chinese government restricted exports in 2022 due to high global values and tight inventories. Rather than supply the world, they restricted exports to lower domestic prices and ensure domestic stockpiles.
Say what you want about them, they got that one right.
Still, we have seen a bit of resurgence in exports from China. The graph below shows that they are still behind their typical pace but vs last year, they are doing much better. It builds hopes that they are continuing to take steps back to normal export flows which would allow global values to fall further and get more in line with historical and grain values.
As with everything China, it is very difficult to forecast what they will do next. I would not be surprised if the government locked down exports once again. I would not be surprised if the government encourage more exports to help cash flows for a struggling economy. If you can tell me what they are going to do most of the time, let's chat. I have a job waiting for you!!!!
commentary
Price comparisons
Vs 30 days ago - -2% or approximately $12 lower
Vs 90 days ago - +3% or approximately $13 higher
Vs 6 months ago - -19% or approximately $122 lower
Vs 1 year ago - -25% or approximately $177 lower
Morocco DAP price comparison
Number 1 global exporter in 2022
Price comparisons:
Vs 30 days ago - +3% or approximately $18 higher
Vs 90 days ago - +26% or approximately $124 higher
Vs 6 months ago - +4% or approximately $23 higher
Vs 1 year ago - -21% or approximately $160 lower
Black Sea DAP price comparison
Number 3 exporter of DAP/MAP in 2022
Price comparisons
Vs 30 days ago - +2% or approximately $11 higher
Vs 90 days ago - +21% or approximately $95 higher
Vs 6 months ago - +6% or approximately $29 higher
Vs 1 year ago - -16% or approximately $106 lower
China DAP price comparison
Number 2 global exporter in 2022
Price comparisons
Vs 30 days ago - unchanged vs last month
Vs 90 days ago - +30% or approximately $133 higher
Vs 6 months ago - +9% or approximately $49 higher
Vs 1 year ago - -18% or approximately $125 lower
Saudi Arabia DAP price comparison
Number 4 global exporter in 2022
Price comparisons
Vs 30 days ago - +3% or approximately $18 higher
Vs 90 days ago - +27% or approximately $127 higher
Vs 6 months ago - +8% or approximately $46 higher
Vs 1 year ago - -19% or approximately $136 lower
- Cost of production continues to rise – our focal point for "high cost producer" in the global phosphate market is the U.S....and costs continue to rise. Now, it is certainly well below the current phosphate market, but the rising cost does point to pressure. As sulfur and NH3 values rise, the cost of production rises. Manufacturers can either deal with reduced margins...or try to take prices higher to recoup that change.
- Israel/Palestine/Middle East fears could impact phosphate production/shipments – this should be considered a "low probability/high impact" situation. We DO NOT expect to see the region fall into a war so bad that Saudi Arabian phosphate production is reduced or stopped. However, with tensions as high as they are, we cannot count them out.
- N.A. logistics/tight inventories will hold values – North America ended last spring extremely tight on phosphate inventories. Exports have continued. Imports are lower due to duties. Now, lower Mississippi River and Arkansas River flows are impeding barge flows. Inland markets have all the reason in the world to keep prices high...if not higher going into fall.
- Largest global buyers (India/Brazil) are either ahead or in-line with yearly averages – when we updated our August India phosphate import values, we found that the rate had slowed considerably. One month is not enough to sound the alarms but given how far ahead of normal they are thru August, that trend could continue into the rest of the year. Brazil seems very comfortable at the moment. If the two largest buyers slow their pace, it could inflict bearish pain on phosphate values.
- Global values appear high vs "normal" current supplies/exports – when I look around the world, on the surface at least, supplies and exports look like their are fairly close to normal. If that is truly the case (I believe it is), I struggle with why phosphate values are as elevated vs normal as they are today. Feels like something needs to give...
- Mounting challenges to U.S. phosphate duties could see market become nervous – this is a storyline that is gaining a lot more attention and traction. Seems more and more people/companies/organizations/etc. are turning their attention to it and are smelling blood in the water. We could see this groundswell of support for doing away with the duties against Morocco/Russia/China cause actual change. If successful, NOLA prices will not drop to hundreds of dollars per ton vs the rest of the world. However, it will likely cause NOLA to move toward the cheaper end of global values rather than the high side it is today.
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 WILL LOOK DIFFERENT
These graphs look at the FOB price of the major export origin points around the world. A move higher/lower in those areas does not guarantee an exact move where you are.
This tool becomes much more powerful when using local historical data. We need to watch the global points for direction and a sense of what is to come but must make decisions about our prices at home.
- Chinese exports - as the typical world's largest producer and exporter of DAP/MAP, their export programs go a long way in determining price direction. Exports are better this year than last year, but are still shy of "typical" flows. As we have seen in the past, their approach can change in an instance.
- India/Brazil imports - updated import information for India shows that they have slowed their pace slightly. Is this a one month situation or are more similar months to come? Will Brazil pick up the pace and need to call on tonnage or will imports naturally flow as the U.S. continues to push away the 3 largest exporters?
- North American import/export flows and fall demand - by all accounts, we are starting the fall run much tighter on phosphate inventories than normal. Will the higher price push demand to the winter/spring period and help alleviate the fall situation? Will imports unexpectedly start arriving (unlikely)?
- U.S. duties against Morocco/Russia/China - there is a growing chorus of the industry saying that the duties imposed against Morocco/Russia/China should be dropped as one of the main arguments for the duties was the ability for North American manufacturers to meet North American demand. Most are arguing that IS NOT happening. I highly doubt anything happens short term. Most likely will be a winter/spring situation...but is something to watch as it will affect the market.
All data was sourced from StoneX unless otherwise noted.
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