FERTILIZER MARKET REPORT October 28, 2022

Drought Continues to Plague Mississippi River; Fertilizer Industry Feels the Impact

Commentary from Green Markets

Drought continues to plague the Mississippi River with portions closed for dredging. Waters in Memphis, Tenn., fell to a reading of negative 10.79 feet late on Oct. 17, below the previous record low of negative 10.70 set in 1988, according to National Weather Service data.

Part of the river near Hickman, Ky., was shut for dredging after barges grounded. The site reopened later in the week for one-way traffic, with 74 vessels and 943 barges waiting to move, Bloomberg reported on Oct. 19. However, there were at least two other river closures at the time; one at Memphis with 33 vessels and 499 barges stalled, and another at Battle Axe/Tunica with 20 vessels and 322 barges in the queue.

“This is the most severe we’ve ever seen in our industry in recent history,” Mike Ellis, CEO of American Commercial Barge Line told CNBC. “That’s a significant impact to our supply chain. We can’t get the goods there.”

Forecasters see no or little near-term relief. “We are seeing some signs of a little bit of rainfall with the cold fronts working their way through, but nothing that will get us out of the low-water situation,” said Jeff Graschel, a hydrologist at the Lower Mississippi River Forecast Center.

“There is no rain in sight, that is the bottom line,” Lisa Parker, spokeswoman for the US Army Corps of Engineers Mississippi Valley Division, told the Wall Street Journal. “The rivers are just bottoming out.”

Fertilizer industry players pointed to the impacts on the market. “The river is getting to be a big deal,” said one source. “Many barges cannot make it to the docks. We can but it’s a struggle. I think product will tighten up because of it. With the barge/low river problems, we are starting to see a disconnect to the NOLA prices, much like the large grain prices spread on basis. We see price lists that quote a price subject to barge arrival. It is easy to be cheap when you are out.”

Market sources told Green Markets they were relying on their contract freight rates and trying their best to stay out of the spot market for freight. “There is much higher spot rates as well as a reluctance from barge operators to even quote,” said one player. “It’s a mess out there.”

“Spot barges really aren’t available,” added another, saying he had heard rates to St. Louis as high as USD$100/st.

Ironically, grain spot barge rates from St. Louis dropped to USD$72.58/st for the week of Oct. 18, down from its peak of USD$105.85/st for the week of Oct. 11, according to USDA’s Grain Transportation Report, which attributed the drop to some grain shippers delaying deliveries until later in the year. Nonetheless, it said grain spot rates remain up 130% from last year and up 260% from the three-year average.

The disruptions couldn’t come at a worse time for US crops, particularly soybeans. American farmers need to ship them now because it’s the only window they have to dominate world sales. If they fail, domestic inventories will likely stay bloated because Brazil will soon begin harvesting its mammoth crop and flooding global markets with product. 

“The US is losing the opportunity to sell as much as they can before Brazil’s harvest, and all signs point to a record Brazilian crop so far,” said Victor Martins, Senior Risk Manager at HedgePoint Global Markets in Brazil. 

If the US can’t export enough soybeans, that is bearish for prices on the futures exchange in Chicago. US prices are a world benchmark, meaning that the oilseed in other areas of the world can be priced off of the Chicago exchange. Ultimately, cheaper soy means some relief could be on the way for high food prices since the oilseed is used in everything from cooking oil to animal feed. 

There are already signs the US is losing sales, with top buyer China booking cargoes from Brazil and Argentina instead of the US, an unusual move for this time of year.

Another wildcard that’s hurting US exports is Argentina. At least 8 million tons of soybeans were sold in a few days by Argentinean exporters after the local government allowed farmers to receive a better exchange rate.  “Argentina basically ‘came out of nowhere’ in this market and dumped a lot of ‘cheap’ soybeans that China jumped in and bought,” said Arlan Suderman, Chief Commodities Economist at StoneX.

US sales could also get worse. If shipments to China are pushed back far enough behind schedule, buyers may cancel and switch to Brazil, according to Doug Houghton, an Analyst at Brock Associates Inc. in Milwaukee.

Reports that China is buying US cargoes for arrival in Asia in February is one area where American soybeans are doing well. That is a possible hedge in case Brazilian production isn’t as plentiful as forecast. Last year, a drought in December reduced the nation’s output to the lowest since the 2018/19 season. Last week, China booked 13 cargoes for December and January shipment from the US, according to several market sources.

India

It now appears IPL will award 1.528 million mt to 12 companies. The shipping deadline is Dec. 5. The final price is USD$649.48/mt CFR for West Coast deliveries and USD$655/mt CFR for East Coast deliveries.

The IPL urea tender closed on Oct. 17 with 19 companies offering 2.7 million mt. The lowest offers were from Ameropa with 141,450 mt at USD$649.48/mt CFR for West Coast ports, and from AgriCommodities with 72,500 mt at USD$655/mt CFR for East Coast deliveries. No producers offered directly into the tender.

Going into the tender, sources were expecting to see prices soften from the $668-$675/mt CFR achieved in the previous tender. Most were satisfied the current price does not represent a crash, but rather a predicable correction in pricing.

Brazil

Urea prices slipped to USD$650-$670/mt CFR, with buyers pushing for even further discounts. Sources said new bids are coming in at USD$610-$630/mt CFR, but with no takers yet. The low bid prices are reportedly being actively discussed for material from sanctioned countries such as Venezuela and Iran. Buyers are watching India and Nigeria closely for a potential turnaround in pricing. Sources are concerned that if India takes the 2 million mt expected by international traders, it could tighten the urea market enough to push up prices into Brazil. In addition, flooding in Nigeria has reportedly affected production at Indorama. Nigeria has grown into a major supplier for Brazil. About 18% of urea imports so far this year have come from Nigeria, compared with 8% in 2021 for the same period. Rondonopolis urea pricing is reported up at USD$800-$845/mt FOB ex-warehouse. Some of the disconnect from lower port prices appears to come from a lack of clarity about what will happen to exchange rates and government policy towards farmers following the Oct. 30 presidential election.

Commentary from Argus

In ammonia, there is downward pressure on prices with buyers staying out of the market and sentiment slowly becoming more bearish. Import demand levels in Europe are still unclear and that is keeping spot trade static across most regions. In Europe prices fell by USD$25/mt to around USD$1200-$1250/mt. Production levels of ammonia in Europe are still uncertain for next month and because of that buyers are waiting. In the East there are offers available from China. The availability is limited however. The overall outlook is volatile.

In urea, prices firmed east of Suez because of the Indian buy tender which absorbed considerable length that was hanging over the market. Prices continued to weaken in the west, particularly in Europe and the US. Egyptian prices fell by USD$60/mt. to around USD$700/mt. In Europe, a combination of subsidies, conversations about price caps and a slump in day-ahead prices have all combined to increase nitrogen supply and decrease the urgency amongst buyers. Added to that we are seeing capacity come back online particularly in Poland and Bulgaria however most factories do remain offline. The outlook is volatile. Buyers will wait to commit to fresh purchases.

In phosphates, another week of softness in prices. Buyers are waiting for prices to fall but sellers are unwilling to lower offers and that has led to illiquidity in the market this past week. Availability is limited out of China. Pakistan continues to buy Moroccan DAP on formula pricing. Ma’aden production is down for 40-50 days. Brazil is still quiet with MAP down to USD$600-$650/mt cfr. NOLA MAP is now at a premium to Brazil. The outlook is a bit more stable but softness will return.

North America Urea Last Two Weeks

According to Green Markets, last week, NOLA urea barges were quoted at USD$580-$600/st FOB, down from the week-ago USD$595-$615/st FOB. Earlier this week, The NOLA urea market softened to USD$554-$570/st FOB, compared to the week-ago $580-$600/st FOB.

Last week, Urea prices were reported in a broad range at C$1,085-$1,135/mt FOB in Western Canada, up C$15/mt at the high, while the delivered market was pegged at C$1,110-$1,130/mt in the region in mid-October.

North America Phosphate Last Two Weeks

According to Green Markets, last week, Sources described a mostly quiet NOLA DAP and MAP barge market during the week. With minimal trading action reported, DAP barges continued to track in the USD$720-$730/st FOB range, unchanged from the previous week. Offer levels from domestic producers were quoted at USD$760/st FOB, also flat from one week earlier. A transaction rumored at USD$650/st FOB for loading in the first quarter went unconfirmed on Oct. 20. Prices on MAP barges loading from NOLA were also unchanged at USD$725-$740/st FOB. Some described expectations of a decline below USD$725/st FOB as the market moves closer to November loading. Posted offers from domestic producers continued at USD$775/st FOB. Low water issues on the Mississippi River continued to place increased value on barges and material already stationed at upriver locations. “It’s been quiet this week,” said one trader. “Only terminal tons are moving.”

This week, NOLA DAP and MAP were quoted at USD$720-$730/st FOB and USD$725-$740/st FOB, respectively, unchanged from last week.

Last week MAP was quoted in a wide range at C$1,235-$1,285/mt FOB in Western Canada, depending on location, with the low reported at both Clavet and Corinne, Sask. Recent offers FOB Biggar, Sask., were pegged at the C$1,250/mt level. The last delivered prices were reported at the C$1,270/mt level in Alberta.