FERTILIZER MARKET REPORT November 11, 2022

CF Industries Expecting Global Nitrogen Supply-Demand Balance to Remain Tight

Comment from Tony Will, President and CEO of CF Industries In 3Q Earnings Report

“The conditions that have supported nitrogen prices for the last year – reduced global supply availability from lower operating rates due to high energy costs for marginal production in Europe and Asia – show no signs of abating,” Will added. “As a result, we expect the global nitrogen supply-demand balance to remain tight, with attractive margin opportunities for low-cost producers further into the future.” CF expects the global nitrogen-supply balance will remain tight into 2025 due to agriculture-led demand and forward energy curves that point to persistently high energy prices in Europe and Asia. CF believes it will take at least two more seasons at trend yield to fully replenish global grain stocks, supporting strong grain plantings and incentivizing nitrogen fertilizer application over this time period.

Comment from Jeff Tarsi, President of Global Retail at Nutrien In 3Q Earnings Conference Call

And when I look at (fertilizer) application rates, as I call and talk around, nobody’s cut back on application rates. I made this remark a bit earlier, these are science-based decisions. At Waypoint Analytical last week, which is our soil testing business and over three days last week, they had record soil testing that was coming in. So we’re out doing soil testing, we’re looking at what was removed from the crop this year and looking into areas that we expected that crop to be good. It was as good, if not a little bit better than. There were some areas that were weak, but remember it was very strong and these growers are going to replenish the soil with nutrients. So if I’m looking ahead to next year and looking at our early seed book, it certainly appears that corn acreage is going to be up next year. And so we would expect our volumes in ’23 to return to where they were in ’21.

We hear a lot about reducing fertilizer rates whether because of carbon credits coming to fruition, government regulation or moves to better manage expenses, the reality is that farmers today, and for the foreseeable, future are still going to be be focused on growing more. I am a big advocate for nitrogen stabilizers, biostimulants to enhance nutrient uptake and making and using precision application technology, however, these technologies for the most part can be used with current (and higher) application rates and the farmer is going to be in a better place financially. Synthetic fertilizer use is not going to decline the way farmers are currently incentivized to produce crops.

Commentary from Green Markets

India

Rumors were running wild early in the week that another Indian tender would be called soon. For once, the rumors were correct. National Fertilizer Ltd. called a tender to close Nov. 14 with a shipping deadline of Dec. 22. The technical and price envelopes from offering companies will not be opened until Nov. 15. Sources expect to see slightly softer prices in the tender. Expectations are that NFL will try to take at least 1.5 million mt. So far this year India has purchased 6.1 million mt from tenders. In 2021 the country bought 7.9 million mt in tender, and in 2020 it bought 9 million mt. Sources said to just stay even with demand, NFL will have to take the estimated 1.5 million mt. The tender documents did not specify a desired quantity, as did the recent IPL tender documents.

The buyer might have some wiggle room in how many tons it seeks. India has closed deals for tonnage to be supplied from OMIFCO outside the tender process. However, observers do not expect these tons to completely fill the gap between what is bought by tender and domestic production and the estimated demand. Government figures estimated demand is about 35 million mt/y, with production at 25 million mt/y. If NFL buys 1.5 million mt, that will take them close to the same levels as last year, but not enough to cover the supply and demand chasm. The government announced that it expects to end all urea imports after 2025. The statement said existing production, combined with new facilities coming online in the next few months, combined with the use of nano urea, will be sufficient to cover domestic needs without imports. Increased cost of fertilizers forced the Indian government to increase its budget for subsidies. Even though the cost to farmers has not changed, the difference between what is paid for imported urea and the farmers’ price changes with each new tender purchase. The government estimated that a 45-kg bag of urea would cost about USD$32 at market price. Farmers, however, only pay USD$3.21. The difference is covered by the urea subsidy. Sources reported numerous issues distributing the urea that has already arrived. They noted protests around the country that were related to delays in distributing urea and DAP. One trader said the urea purchased in the NFL tender is probably going to be used to build inventory for next year, because December shipments will most likely not be able to reach the farmers in time for the current season.

Brazil

India’s tender announcement last week continues to affect urea prices in Brazil this week, where new business was reported in the USD$600-$630/mt CFR range, up from last week’s USD$580-$630/mt CFR. The only USD$580/mt CFR offers still available this week are reportedly from sanctioned origins.

Commentary from Argus

In ammonia, prices continue to drift south with most buyers covered for November. Some of the larger European buyers are covered into December. European producers are ramping up production as spot natural gas prices ease. In Northwest Europe, prices fell another USD$25/mt. There is currently no buyer interest in January cargoes because or market uncertainty over the gas prices. In the US, the market is slowly progressing but it is having a limited impact on sentiment and supply/demand is balanced. The overall outlook is weak to year end.

In urea, last week was interesting. Prices fell during the early part of the week with a selloff in Egypt with producers cutting prices by USD$55/mt to clear inventories for November. Then the rally came quickly and prices regained nearly all that lost ground as buying ramped up later in the week. The result is that inventories have been cleared although December remains largely unsold. India announced a fresh urea tender a bit earlier than anticipated. The overall outlook is for more volatility.

In phosphates, another week and another round of heavy buying from India where 160,000 metric tonnes of DAP was bought from Tunisia and Saudi Arabia. NOLA MAP prices fell under pressure from Brazil but DAP NOLA rose to an unusual premium to MAP. European DAP prices fell by USD$25-$40/mt. The overall outlook is for some stability in the East but soft elsewhere globally.

North America Urea Last Two Weeks

According to Green Markets, last week, NOLA urea barges dropped as low as USD$508/st FOB early in the week, but quickly climbed back up to as high as USD$550/st FOB after news broke that India was calling another tender so soon after the last one. The week-ago range was USD$508-$550/st FOB.

This week, NOLA urea prices were reported to have retreated to as low as USD$520/st FOB, after last week climbing from an early-week low of USD$508/st to a high of USD$550/st FOB. Urea prices were also under pressure in the western U.S. New offers at midweek were quoted at USD$675/st FOB Rivergate, Ore., and USD$700-$725/st FOB port terminals in California, down roughly USD$60/st from last report.

Last week, delivered urea prices in Western Canada were reported at C$1,110-$1,130/mt for the third week in a row.

This week, Urea prices in Western Canada were confirmed at the C$1,055/mt DEL level in Saskatchewan, down from C$1,110/mt DEL in mid-October.

Interesting to note that from its peak price of C$1,375/mt realized on April 1, 2022, average delivered Western Canada urea prices slid only 19% to C$1,120/mt while average NOLA urea prices dropped 42% to USD$529/st from its peak of USD$910/st. seen on April 1.

The spread between Urea Delivered Western Canada in $CAD/mt minus Urea NOLA also converted to $CAD/mt has blown out again and now sits at C$331.79. When this happened in June 2022 and February 2022, the market response was for Delivered Western Canada prices to fall while NOLA urea prices were rising. This time around, between September of this year and today we are seeing urea NOLA prices fall faster than Western Canadian prices.

North America Phosphate Last Two Weeks

According to Green Markets, last week, with travel on the Mississippi River impacted by low water levels on the lower river system and seasonal closures for NOLA releases to upper river destinations, DAP and MAP barge prices slipped during the week. DAP barge prices dropped to USD$685-$705/st FOB for the period, sources said, down from the prior week’s USD$700-$720/st FOB range. Moving DAP barges were heard trading at a USD$715-$720/st FOB NOLA-equivalent, illustrating the market’s ongoing preference for upriver barges. NOLA MAP barges continued to be offered at a discount to DAP. Sources noted early-week MAP offers at USD$670/st FOB before dropping to a low of USD$650-$660/st FOB on Nov. 3, while the top of the range was reported at USD$700/st FOB. The weekly USD$650-$700/st FOB range was down from last week’s USD$695-$725/st FOB. Domestic producers reported being sold out of NOLA DAP and MAP barges for November, while available supply for December loading was “thin.” Warehouse tons were also described as limited. The reduced supply was described as a product of both strong seasonal demand and a hangover from Hurricane Ian, which reportedly removed an estimated 200,000-250,000 mt from Florida production in the third and fourth quarters.

This week, The NOLA DAP/MAP market was quiet at midweek.

Last week delivered MAP prices in Western Canada were reported at C$1,270-$1,280/mt for the third week in a row.