Review of Agriculture Commodity Prices and Fertilizer
 
Commodity Prices
 
Corn prices fall with growing U.S Stocks and Large South American Crops; Trade Discussions Continue
Average corn prices fell 2% sequentially in March to $3.67/bu and 3-4% from year-ago levels.  There are several pressures on the price of corn.  First, the U.S. and China are reportedly working on a 10-year deal, which has entered the “final” stages.  Reports indicate China is willing to accept multiple rounds of dialogue to settle any compliance issues, while the U.S. wants to keep some tariffs on and to re-impose other tariffs for any China noncompliance[1].   Second, the United States Department of Agriculture (USDA) April World Agriculture Supply and Demand Estimates (WASDE) report showed a 200 million bushel increase to the 2018/19 ending stocks to 2.035 billion bushels (vs. expectations of 1.991 billion bu) driven by a 50 million bushel decline in corn exports, a 75 million bushel decrease in corn for ethanol usage and a 75 million bushel cut to its feed usage estimate[2].  Third, South American corn output likely will increase nearly 25% reflecting the substantial increase in Brazil and Argentine corn production.[3]
 
Further, South American weather conditions continue to improve – Brazilian farmers have harvested 75% (10 days ahead of last year) of the full season corn crop as of early April.  In addition to favourable weather, Argentina farmers report high corn yields (reported 156 bushel/acre up from 116 bushel/acre recorded last year).[4]
 
Additionally,, US corn exports continue to be limited by cheap supply in South America.  At present, Argentina corn is the cheapest in the world due to their economic issues forcing down the Peso.[5]  In addition, corn exports are down on the year as the high cost of transportation within the US has made it expensive for corn to get to ports.  As long as the Agrentine peso remains low and transportation costs in the US remain high, it is tough to see corn exports improving.
 
Lastly, it is anticipated that corn acres will increase by as much as 4 million acres to 93 million acres[6].
 
Result:  Given the above, it is hard to see corn moving higher in the next few months.  Good harvest results in South America and the potential for more US corn acres planted, even if the trade dispute is resolved, there are many fundamental reasons why corn could trade sideways.
 
Trade Discussions Drive Soybean Prices
February soybean prices declined 1-2% sequentially but declined 14% from year ago levels.  The future prices for soybeans to be driven by 1) U.S China trade discussions 2) South American Crop/weather conditions. 
 
A resolution of the Trade dispute would lead to higher prices for soybeans and lower US crush margins due to increased competition for US soybeans[7].  However, in the longer term, it is unknown how the trade disruption may lead to changing supply chains (i..e China continue to source a higher percentage of beans from South America).
 
South American new crops likely will be sizable, as improving weather should offset the poor weather in December and January. First, Brazil’s soybean crop condition ratings remain solid and much improved from the January lows. For instance, as of 3/28, 82% of the soy crop in Parana was rated good, which compares to 65% in mid-February, and 58% in early January, as unusually hot/dry weather in December/January negatively impacted the crop during its key development stage.
 
Finally, US soybeans are more expensive than South American soybeans.  At present, Argentine beans are $0.32 cheaper than Brazil beans and Brazil beans are $0.37 cheaper than US gulf beans.[8]  Even if or when U.S - China trades gets back to “normal”, the price discrepancy will still drive demand for South American beans.
 
Result: The above, not even to mention the1.6 billion bushel carry out from last year’s US soybean crop, makes it very hard to be positive on soybean prices.[9]  Soybean prices would most likely see a pop higher in the event of a U.S.-China trade dispute resolution, but after that, there are significant headwinds to soybean prices.
 
Large Global Supplies Pressure Wheat
In the April WASDE report, the USDA raised its 2018/19 ending stocks by 5 million MT to 275.6 million MT (vs. expectations of 271 million MT) reflecting higher beginning stocks and lower domestic consumption estimates.[10]
 
The USDA March Prospective Plantings indicated that U.S. all wheat planted areas are expected to come in at around 45.8 million acres, which was 1.1 million acres lower than expected. Second, the March 1 Grain Stocks report indicated all wheat inventories of 1.591 billion bu or 48 million higher than expected and 96 million bu above year-ago levels.[11]  However, exports from the US could increase as Brazil announced that it will allow duty-free imports of 750,000 metric tons of wheat per year from the US and other countries.  In the past, when Brazil temporarily allowed duty-free wheat imports, the US supplied 80% of Brazil’s imports.[12] 
 
Result: Out of the three commodities, wheat might have the most positive outlook (after discounting a pop in soybean prices if the U.S.-China trade dispute is resolved).
 
Fertilizer
Overall, prices for fertilizer are expected to improve for farmers slightly this spring.  Phosphate prices are still in a downtrend trends as previous production reductions have not had an impact on prices.  Potash prices are also trending down and nitrogen prices are flat.  Although US farmer are expected to plant more corn (and therefore use more inputs), with farmer income being challenged it seems unlikely demand will increase in the short term.[13]
 
From the chart below, we can see that fertilizer prices are in general slightly lower in 2019 verses what we witnessed in 2018.  Ammonia prices are down by approximately $65 a metric ton (down nearly 18%) in the first quarter of 2019 compared to price witnessed in 2018.  UAN, Urea and DAP are also down 19%, 11% and 8% respectively.  Potash has shown a slight increase of 3% in the first quarter of 2019 verses prices witnessed in the fourth quarter of 2018.
 
At present, BMO Capital Markets expects Ammonia, UAN and DAP to decrease slightly in the second quarter of 2019 while Potash prices are expected to remain steady.[14]  With farmer break-even costs of $3.35 a bushel and spot corn prices at approximately $3.60, increased fertilizer usage and demand will be limited due to tight profitability. 
 
 
 
 
 

Product	Location	Quantity	Q4/18 Price	Average price in 2018	Q1/19 Price	Q2/19 Estimate	Q3/19 Estimate	Q4/19 Estimate	2019 full year Estimate	2020 full year Estimate
Ammonia	Tampa (cfr)	Mt	345	313	280	273	300	320	293	320
UAN	New Orleans (cfr)	ston	225	186	182	180	165	190	179	185
Urea	Midwest (fob)	ston	333	297	297	265	300	330	298	303
DAP	Midwest (fob)	ston	450	427	414	400	390	39	398	408
Potash	Midwest (fob)	ston	307	282	317	305	285	280	297	275

Source: BMO Capital Markets
 
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