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Review of Fertilizer Prices

Fertilizer
Although a very challenging Spring to plant crops, it is surprising that prices for fertilizer did not dropped.  Prices in the US Mid-West remain strong with a substantial premium for products, particularly in nitrogen, due to the inability to move fertilizer north to grain producing regions due to flooding.[1]  Potash and phosphate have been weak and could go lower.

Some products did see demand destruction as ammonia prices declined substantially due to the late Spring and a weak early corn planting season lead to a shift to urea/UAN.  It is likely that we will see further lower ammonia prices into the third quarter.[2]  It also seems likely that urea prices could remain strong in the third quarter due to lower Chinese urea exports and Iranian sanctions.  Chinese urea exports may have peaked as Chinese producers are shifting focus to their domestic market due to higher returns there.  Iranian urea is also having a problem finding a market to sell to due to the end of the waivers the US had provided to countries to buy oil and petro chemical products (including urea).[3]    UAN demand should continue to be strong given that farmers can mix it with crop chemicals when they spray corn.  Overall, the nitrogen market supply and demand looks balanced for the rest of 2019 and prices should remain in the range they have been in.

Phosphate prices continue the downward trend with no clear floor in sight.  Currently, there is a lack of demand in the US (and resulting high inventories) due to poor weather conditions, less domestic consumption in China leading to higher exports  and new supply coming online.  Chinese DAP/MAP exports will be key factors to watch in the third quarter – it was anticipated that phosphate would find support when Chinese DAP prices fell to $350/ton where industry estimates half of Chinese production should be making losses and exports become uneconomical.[4]   With current prices below $350 a ton, it is unclear where the bottom will be.

Potash prices could remain steady this year.  There is new supply coming online in Europe and potash demand is low.  There are higher inventories in the US (difficult weather), China (little demand) and South East Asia.[5]  One example of high inventories impacting prices is the Midwest potash prices only $5/short ton higher year over year verses global potash prices averaging $25-$35 a ton higher year over year.[6]

Overall, after the difficult spring that we have encountered, what is the outlook, overall, for fertilizer?  Farmer income will be stressed and uncertain this year and a great deal of crop input was returned to retailers so the investor could be high going forward.[7]  However, with corn prices rallying outside of their 5 year trading range, the fertilizer industry expects 95 million acres of corn to be planted in 2020 and substantial fertilizer demand based off of that acreage number.  [8]  If yields are lower than expected due to late planting, it could be an ideal setup for fall/spring demand considering the likely high crop prices that would persist.[9]  However, with little experience with so much late planted corn, there is great uncertainty as to farmer profitability (and therefore fertilizer demand) going into 2020. 

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

 
Product Location Quantity Average price in 2018 Q1/19 Price Q2/19 Price Q3/19 Estimate Q4/19 Estimate 2019 full year Estimate Q1/20 Estimate 2020 full year Estimate
Ammonia Tampa (cfr) Mt 313 282 237 242 285 261 290 293
UAN New Orleans (cfr) ston 186 182 168 165 190 176 195 185
Urea Midwest (fob) ston 297 297 349 300 325 318 310 309
DAP Midwest (fob) ston 427 414 393 350 370 382 380 388
Potash Midwest (fob) ston 282 317 309 290 290 301 290 285
Source: BMO Capital Markets
 
 
[1] Q2 Fertilizer and Chemicals Preview – BMO Capital Markets – July 2, 2019
[2] Q2 Fertilizer and Chemicals Preview – BMO Capital Markets – July 2, 2019
[3] Q2 Fertilizer and Chemicals Preview – BMO Capital Markets – July 2, 2019
[4] Q2 Fertilizer and Chemicals Preview – BMO Capital Markets – July 2, 2019
[5] Q2 Fertilizer and Chemicals Preview – BMO Capital Markets – July 2, 2019
[6] Jackson’s Five – BMO Capital Markets - June 21st, 2019
[7] Jackson’s Five – BMO Capital Markets – June 7th, 2019
[8] Q2 Fertilizer and Chemicals Preview – BMO Capital Markets – July 2, 2019
[9] Jackson’s Five – BMO Capital Markets – June 14, 2019