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Review of Fertilizer Prices

After a very challenging Spring, weather continues to play a large role in the future pricing of fertilizer.  Weather, and the timing of frost or early snow storms or freezing weather, will impact the fertilizer demand in north America, both fall application and when crop budgets are prepared for 2020.

Nitrogen has been quiet stable as supply and demand for this commodity has largely been in balance.  Worldwide, Urea prices are likely to firm in the fourth quarter as India seems short this product following a strong 2019 monsoon season.[1]  In the medium term, it does not look like much new supply will be coming online in the nitrogen market, and the supply that does come into production is not where there is significant gas supply.[2]  The profitability of nitrogen producers has increased as the price of natural gas has dropped 31% year to date[3].  If supply in gas restricted areas does come into production, it will most likely not be in large quantities.

Phosphate prices are likely to continue to decline.  Inventory levels are higher globally and supply is being reduced at plants around the World.[4]  One key issue to look at is the breakeven price of Diammonium Phospate (DAP).  The estimated breakeven price for Chinese production of DAP is $290-$320 a tonne and the spot price is $315.[5]  This could provide some support to DAP.  Another key issue to watch is Chinese DAP exports which have been declining recently.[6]  This also could be positive for DAP prices.  Finally, we are close to 5 year lows in the price of phosphate products.[7]

Potash supply and demand has deteriorated in 2019 and prices could fall.  Potash prices have declined this year around the World by $20-$40 a tonne this year.[8]  Inventory has risen in the United States (due to weather), China (less demand) and South East Asia (weak palm oil prices).  Producers has started to curtail production at a variety of plants, however, given the level of inventory around the World, this is not expected to make an immediate difference in price.

Overall, what is the outlook for fertilizer?  With frost risk declining each day, the weather premium is being taken out of the corn market and will put pressure on corn prices.  The World Agriculture Supply and Demand Estimate (WASDE) to be released October 11 will give an indication of yields, acreage and production.  If there are not substantial reductions to yield, it is unlikely to move the corn market higher and as a result, corn will remain in the $3.50 to $4.00 band it has been in.  With a corn price in that level, it is unlikely to see fertilizer demand increase.  Additionally, although the industry is attempting to reduce demand by curtailing mines and shut-ins, it is unlikely these activities will change global inventory levels enough in the short-term to increase prices of these fertilizers.   

At present, BMO Capital Markets expects fertilizer to remain steady in this quarter.  The forecasts are below.  
Product Location Quantity Average price in 2018 Q2/19 Price Q3/19 Price Q4/19 Estimate 2019 full year Estimate Q1/20 Estimate Q2/20 Estimate 2020 full year Estimate
Ammonia Tampa (cfr) Mt 313 237 218 263 250 385 270 286
UAN New Orleans (cfr) ston 186 168 155 190 174 195 175 185
Urea Midwest (fob) ston 297 349 294 320 315 310 275 309
DAP Midwest (fob) ston 427 393 344 320 368 330 350 355
Potash Midwest (fob) ston 282 309 298 290 303 290 285 285
Source: BMO Capital Markets
[1] Q3 Fertilizer and Chemicals Preview – BMO Capital Markets – October 2, 2019
[2] Ibid
[3] Thomson one – October 10, 2019
[4] Q3 Fertilizer and Chemicals Preview – BMO Capital Markets – October 2, 2019
[5] Ibid
[6] Jackson’s 5 – BMO Capital Markets – September 27, 2019
[7] Jackson’s 5 – BMO Capital Markets – August 30, 2019
[8] Q3 Fertilizer and Chemicals Preview – BMO Capital Markets – October 2, 2019