Review of Fertilizer Prices - June 2020

Review of Fertilizer Prices

Although fertilizer prices are at historical lows, there do not seem many catalysts in the near term that will put fertilizer prices higher.

The largest overriding issue in fertilizer is the potential decreased demand this year due to decreased planting in North America.  On June 30^th, the United States Department of Agriculture (USDA) released their annual Acreage report that showed that US farmers planted approximately 5 million acres fewer acres of corn compared to the planting intentions released in March.  This decreases the potential for fertilizer application and sales of products and will act as an overhang to local fertilizer prices for the foreseeable future.

Nitrogen prices did strength in the period of March to June, but have since backed off given the Acreage Report noted above.  In the big picture, the supply and demand continues to remain in balance.[1] 

Phosphate did rally in the last quarter as demand from India (and lack of inventory there) did provide some support to the price of this fertilizer.[2]  US urea is now the cheapest in the World also reducing in some price support for North American urea prices.[3]

Potash prices dropped substantially this spring due to price competition between supplier.[4]  As I indicated in my March Fertilizer report, supply and demand continues to deteriorate for fertilizer producers with more supply coming online and demand is not catching up.  Until fertilizer companies start to reduce supply, it is difficult to see a floor in the price of potash anytime soon.  A key catalyst for a floor in potash is announcements of curtailments or shutdowns of potash mines.

One big picture item that impacts all fertilziers is a draft document relased by the European Commission which indicated  the EU may have targets to cut fertiliser use in the European Union over the next decade in order to have the agriculture sector assist with their climate policies.[5]

Overall, what is the outlook for fertilizer?  The largest driving factor is acres planted and with 5 million fewer acres planted in America, that will weight on fertilizer for the rest of this year.  This, combined with over production of certain fertilizers, should have the fertilizer complex under pressure. 

At present, BMO Capital Markets expects fertilizer to remain steady in this quarter.  The forecasts are below.  
 

Product	Location	Quantity	Average price in 2019	Q1/20 Price	Q2/20 Price	Q3/20 Estimate	2020 full year Estimate	Q4/20 Estimate	Q4/20 Estimate	2021 full year Estimate
Ammonia	Tampa (cfr)	Mt	248	250	234	218	241	260	270	263
UAN	New Orleans (cfr)	ston	162	130	141	125	131	130	165	158
Urea	Midwest (fob)	ston	301	273	286	270	285	310	295	303
DAP	Midwest (fob)	ston	364	310	310	320	315	320	330	335
Potash	Midwest (fob)	ston	301	262	250	235	248	245	255	263

 
Source: BMO Capital Markets