Market reacts to invasion of Ukraine

Addressing the elephant in the room – the Russian invasion of Ukraine on February 24. It is important to remember that Russia is a low-cost producer of nitrogen, phosphate and potash. 

Fertilizer markets almost immediately reacted with bullish moves in the NOLA indices. On February 25, Urea New Orleans (NOLA) jumped 34% from a low of $525 per short ton recorded the previous week to a high of $705. MAP NOLA prices bounced 15% from a low of $750 per short ton to a high of $865. In the cornbelts, distributors withdrew offers on urea as barge prices rose.

Market supply is tightening as distributors along the Mississippi assess inventory levels. Fertilizer exports from the Black Sea region were impacted quickly as ports shut down early in the conflict. The Arab Gulf is reportedly sold out of urea until March and the UK banned all Russian ships from its ports. The European Union banned all imports of Belarusian potash. Urea and DAP imports into the UK will likely be most impacted within the fertilizer complex. This will force the UK to seek N and P from different locations which will tighten supply further and support prices globally. In 2021, Russia sold urea to 86 countries. The largest buyer was Brazil with close to 20% of Russia’s urea exports. Where will Brazil go now? Again, seeking supply elsewhere will ultimately tighten global markets and support prices. 

On February 26, the Canadian Government banned all Russian ships coming into Canada. Eastern Canada relies on Russian imports of fertilizer to satisfy demand. This will force Eastern Canadian buyers to look to the US – most likely the Twin Cities for supply. Again, tightening North American fertilizer markets.

Urea NOLA and Urea Western Canada prices diverged between late November 2021 and late February 2022. While NOLA fell, Western Canada prices increased into December, settled down a bit in January and remained flat through February. MAP prices in North America have been increasing monthly on average since August 2021.

This week the impact from Russia moved north up the Mississippi. New cornbelt urea prices were posted this week after being withdrawn last Friday. Terminal prices were up significantly from a low of $600 per short ton last Friday to being reposted at highs of $735/st this week. In western Canada, delivered April/May tonnes were quoted at $1200/mt down slightly from $1240 last week but volume was limited. In our view, the higher prices will eventually reach western Canada…once again.

Of course there will be some demand destruction given the high prices however we believe that the lack of supply due to extraneous issues will outweigh the demand destruction and keep prices propped up through the spring season. Western Canada will also likely see reduced supply as some retailers were waiting for prices to fall. It did not happen and now spring positions could be short. 

Our preferred analysis when assessing the urea price situation in western Canada is a comparison of the Western Canada Delivered price to NOLA in Metric Tonnes and Canadian Dollars. Notice how the spread has blown out recently. 

Showing the same story but in one line chart is another way to view how much more Canadians are paying for urea.


Average monthly Western Canadian Delivered Urea prices reached highs not seen in the last decade.

The same for MAP Western Canada Delivered prices.

In summary, we believe that the market in western Canada will remain tight for the next few quarters at least. It will take time to sort out the geopolitical issues which, in our view, will keep the fertilizer markets on edge. We do not see any significant price relief this spring.

Industry Tidbits

Nutrien stock NTR is on fire, up 27% in the last month largely due to the Russian impact on potash supply and the following positive commentary from the company:

  • “The outlook for global agriculture and crop input markets is very strong and we are well positioned to deliver significant growth in earnings and free cash flow in 2022. We will continue to advance our strategic priorities and maintain a disciplined approach to deploying capital, using our strong financial position to grow the business and return significant cash to shareholders,” added Mr. Seitz.
  • Most importantly, earnings growth is expected to jump 88 per cent year over year in 2022 but then fall by 39 per cent in 2023.

And CF Industries provided the following comments from SVP of sales Bert Frost:

  • “We believe that the year ahead will see overall nitrogen pricing at much higher levels than 2016-20,” Bert Frost, senior vice-president of sales, market development and supply chain with CF Industries, said in a recent article he wrote for CropLife.
  • A similar message was delivered by Ken Seitz, interim president of Nutrien Ltd., during the company’s fourth quarter 2021 earnings conference call.  “We expect high global energy prices, Chinese export restrictions and heightened geopolitical risks will support prices in 2022,” he said, according to a Seeking Alpha transcript of the call.

The fertilizer industry globally is in somewhat of upheaval at this time supporting the Genesis Fertilizers business model. It is a perfect time to take ownership of a urea manufacturing facility built in western Canada.

For more information email info@genesisfertilizers.com

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