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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).
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
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of BMO Nesbitt Burns Inc. ("BMO NBI"). Every effort has been made to ensure that the contents have been compiled or derived from sources believed to be reliable and contain information and opinions that are accurate and complete. Information may be available to BMO NBI or its affiliates that is not reflected herein. However, neither the author nor BMO NBI makes any representation or warranty, express or implied, in respect thereof, takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. This report is not to be construed as an offer to sell or a solicitation for or an offer to buy any securities. BMO NBI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. BMO NBI -will buy from or sell to customers securities of issuers mentioned herein on a principal basis. BMO NBI, its affiliates, officers, directors or employees may have a long or short position in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. BMO NBI or its affiliates may act as financial advisor and/or underwriter for the issuers mentioned herein and may receive remuneration for same. A significant lending relationship may exist between Bank of Montreal, or its affiliates, and certain of the issuers mentioned herein. BMO NBI is a wholly owned subsidiary of Bank of Montreal. Any U.S. person wishing to effect transactions in any security discussed herein should do so through BMO Nesbitt Burns Corp. Member-Canadian Investor Protection Fund.
[1] Commodity Catch Up – April 12, 2019 – BMO Capital Markets
[5] Commodity Catch Up – April 12, 2019 – BMO Capital Markets
[6] United States Department of Agriculture World Agriculture Supply and Demand Estimate – April 9, 2019
[7] Commodity Catch Up – April 12, 2019 – BMO Capital Markets
[8] Commodity Catch Up – April 12, 2019 – BMO Capital Markets
[10] United States Department of Agriculture World Agriculture Supply and Demand Estimate – April 9, 2019
[11] United States Department of Agriculture World Agriculture Supply and Demand Estimate – April 9, 2019
[12] Commodity Catch Up – April 12, 2019 – BMO Capital Markets
[13] Staying the course in Our A1Fertilizer and Chemical Review – April 2, 2019 – BMO Capital Markets
[14] Staying the course in Our A1Fertilizer and Chemical Review – April 2, 2019 – BMO Capital Markets