Fertilizer volatility wanes, but could quickly turn
Russia and China caused shock waves on the fertilizer market over the last two years, but those movements have calmed.
Two major factors drove up the fertilizer market in the last two years. Now, those waves have calmed but the question remains - are the worst of the high prices behind us and what could return quickly to change the market.
We put these questions to Josh Linville, the vice president of fertilizer for Stone X.
His comments are part of an upcoming MtoM Podcast and is this week’s Cover Story.
[Josh Linville] I would say the leading one was the Russian invasion of Ukraine, which a lot of people sit there and say, Oh, well, that must have really hurt Ukrainian fertilizer exports. And that's not the case, because Ukraine is not a major exporter of fertilizer. What happened, it was a secondary event, Russia, upset with Europe. But first on the Nord Stream pipeline situation, and of course, their support of Ukraine stopped shipping natural gas to Europe, European Dutch TTF value started to skyrocket, all of a sudden, then we had, you know, the price of the input was so high, they could not make nitrogen fertilizer in a disrupted global supplies. That to me is the single biggest event, just because it wasn't a direct fertilizer situation is one of the secondary events that had a major impact on the fertilizer markets.
[Paul Yeager] So now, Josh, we sit here and look at the market and say, Okay, we still have Russia trying to invade Ukraine still there, that issue hasn't gone away. China's having whether it's an up or down economy, you pick what service you want to believe. And we've seen a relaxation in most of the fertilizer prices, why?
[Linville] We have normalized a lot of the situations. To your point, the Russian stoppage of natural gas flows to Europe. At first, that was a major event. Oh, my gosh, what are we going to do? We're going into winter, there's not enough supplies, we saw that Dutch TTF go from 4-5-6 dollars and MMBtu to 103. Today, 15-16 bucks. Are we back to absolute normal? Absolutely not because the world is still messed up. But we're not back at that high end. Because we figured out normal, we figured out imports and exports and things like that. And open and free market finds a way, eventually, there's always gonna be a little bit of a scary period there were always there was like, Oh my gosh, I don't know what's going to happen. And in fear generally drives prices higher. But as we start to figure it out, and that's what's happening around the world, we figured out oh my gosh, we thought we were losing Russia. We didn't lose Russia. Oh, my gosh, Europe will never turn their nitrogen production back on. About 75 to 85% of their production is now online. So all these events that we're scared of, we figured out.
[Yeager] But did we also use less product?
[Linville] To a certain extent? Yes. High prices cure high prices. Demand always ends up having a say in that sad, right. So yeah, there's a little bit of the scaling back. But ultimately, this seems as though it was more of a rationale of the New World, to me at least.
[Yeager] So what's going to be the big driver now then, on the volatility?
[Linville] Well, right now, it depends on the market. When we look at nitrogen, a lot of it is centering around China again, the government continues to sit there and step into the export market, making dictations you can do this. You can't do this right now. The big fear of the world is the government came out and said we need to fill Chinese warehouses first we are going to stop exports. Well, then we started to find out it wasn't exports to the rest of the world. It was exports to India, they're really zeroing in and saying we're in slowdown going to India. So that's disrupting global supply as well, the trade on the phosphate, it is dodging two bullets, you know, that major hurricane that went up to the Gulf of Mexico, and when just north of Tampa, that thing missed a lot of phosphate production by a hair in in the earthquake in Morocco, right? That huge devastating effect on the population. Fortunately, the phosphate production kept on turning along. So it's miss two major bullets, but still dealing with very, very tight supplies here in the US countervailing duties are keeping three of the world's largest global exporters from exports in our country.
[Yeager] We're already looking ahead. I'm already getting questions about '24 acres, you're making a decision to plant corn or beans. Now, if you're applying anhydrous so you're anticipating more fall application henceforth, more corn acres, right or am I reading too far down into the book?
[Linville] We are forecasting right now in our demand models, we are using 92 million acres of corn and 88 million acres of beans next year. Now that is actually a little bit less corn acres than what we did this year. However, last year anhydrous a little bit overvalued and we didn't quite know there was gonna be 94 billion acres, right. We didn't lead into the season thinking there's gonna be that much. But as we look at it, we actually think that anhydrous is going to take more of the overall nitrogen demand, assuming mother nature allows us to get out there because it has been so well priced. Right now we're forecasting that boy anhydrous gonna be great. It's gonna be 2.15 million tons of light. What happens if it's November 1, and it's finally starts raining? That's great for the Mississippi River. That's terrible for anhydrous application and well floods in stat freeze, and we can't run toolbars anymore.
[Yeager] I guess I'll ask one more weather question. When you see areas come out of drought that traditionally are in drought. I'm thinking of areas south of you and West of you that have emerged. And then the areas around me that are in drought and don't look anywhere close to emerging, does that have any influence on what you do?
[Linville] Absolutely. And it's, it's having the conversations with our clientele in those areas, it gets very difficult. Because pull yourself obviously a lot of folks are listening in from a farmer's perspective. It's hot, it's dry, what's your approach to it, I'm not putting anything on this ground, I'm not going to plan anything. If there's no moisture, it's stupid, I'm gonna spend the money. So your feedback to the retailer, I'm not going to buy I'm not going to buy I'm not going to buy what happens when the first rain comes through. Why need to buy retail center saying that you sat there and said, You're going to need anything. Every farmer in the area was saying I you are going to need anything, I wasn't going to take that price risk. So now all of a sudden, demand goes from zero to 100 mile an hour in a matter of a couple hours when a rainstorm comes through. So that's in all sudden you start trying to figure out those regions, you can have an overall market that's falling through the floor. But if that region is sitting there desperate for whatever can get its hands on, that number can actually start to rise and those little opportunities or the risks that we look for.
[Yeager] The full discussion will be part of the M to M release on Tuesday.