The Hidden Reason Phosphate Duty Relief Has Not Reached US Farmers

When Washington suspended countervailing duties on Moroccan phosphate fertilizer, some politicians promised dramatic relief for US farmers, with talk of phosphate prices being cut in half. Moroccan phosphate duties have done little for US farmers because the US was already the cheapest major phosphate market in the world, and in a tightly supplied global market producers can send their tons wherever they earn more. New Orleans diammonium phosphate (DAP) prices have moved only modestly since the decision, and have edged higher rather than lower. Behind that stubbornness sits a phosphate supply picture shaped by China's retreat from exports, a closed Strait of Hormuz and expensive raw materials.

Josh Linville is Vice President of Fertilizer at StoneX, where he covers North American and global crop input markets, tracking the trade flows, pricing and policy decisions that shape what US farmers pay for phosphate, potash and nitrogen.

Key Themes from the Discussion

• The US was already the world's cheapest major phosphate market before duties on Moroccan fertilizer were suspended.
• Tight global phosphate supply lets producers such as Morocco favor higher-paying markets over the US.
• China's export retreat and the closed Strait of Hormuz keep global phosphate supply constrained.

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Phosphate Duty Relief Lands in the World's Cheapest Major Market

Phosphate duty relief was presented as a fix for high fertilizer costs, but it arrived in a US market that was already priced below the rest of the world. The political case for suspending the countervailing duties on Moroccan product assumed that foreign phosphate was being held back by the duty alone. In reality, the pricing gap ran the other way, since a lower US price gives exporters little reason to redirect cargoes toward American ports. So why would a duty change pull in tons that could earn more elsewhere? That mismatch explains why New Orleans DAP prices moved only modestly after the suspension, rather than tumbling as the political messaging suggested. The starting point mattered more than the policy, given that "the US was already the cheapest market in the world as far as major price points," Linville notes..

Moroccan Phosphate Sellers Send Tons to Higher-Paying Markets

Moroccan phosphate producers are using their pricing power to favor markets that pay more than the US, which blunts the effect of the duty suspension. "So tightly supplied that manufacturers can be choosy on where they go" is how Linville describes the global phosphate market, and Morocco has taken full advantage of that position. Some Moroccan phosphate has come to the US as a gesture of thanks for the suspended duties, but not in volumes large enough to change the US supply balance. In a looser market, removing a trade barrier would pull product toward the buyer who benefits, whereas in a tight one the seller decides where the tons go. For US farmers, the result is that phosphate relief on paper translates into very little extra product in practice.

Phosphate Supply Stays Constrained by China, Hormuz and Input Costs

Global phosphate supply remains constrained by the absence of Chinese exports and the closure of the Strait of Hormuz, two forces well outside the reach of US trade policy. China, the world's largest phosphate supplier, has cut its exports from around 10 million tons a few years ago to a sliver of that volume, removing a huge amount of product from global trade. Saudi Arabia, another major phosphate source, is struggling to get product out while the Strait of Hormuz remains closed to normal vessel traffic. "The Strait of Hormuz," Linville says, "is still the biggest story that I'm watching," and he describes the waterway as the linchpin for phosphate. Tight and expensive supplies of sulfur and anhydrous ammonia, key inputs for phosphate manufacturers around the world, add further cost pressure. For US buyers, the price of phosphate is effectively being set by shipping lanes and raw material markets far from Washington.

 

--- Written by Gus Farrow, Senior Manager, StoneX Media

--- Expert: Josh Linville, StoneX VP of Fertilizer