It wouldn’t be 2021 if a product shortage wasn’t yet again making headlines.
This time, it’s fertilizer — phosphorus, to be exact, as China plans to essentially eliminate phosphate exports through to June 2022.
Josh Linville, director of fertilizer with StoneX, recently joined RealAg Radio host Shaun Haney to discuss the latest developments, and why this is something all farmers should be paying attention to.
With the current state that China is in — showing more of an increased move towards exiting the export market — the facts can’t help but concern analysts as they wonder what will be next on the list.
“If you export phosphate or urea, or whatever it is, that basically represents energy, and they [China] want to try to get away from that,” Linville explains. “They are trying to protect their own farmers. They are telling these producers keep the tonnes home. We will support our Chinese farmers first, and we will deal with the rest of the world later on.”
Since China is such a large player in the market, therein lies the problem, says Linville. That kind of mentality impacts the entire marketplace.
But why? Why is this so crucial to fertilizer markets? Well, China is responsible for 39 per cent of global production capacity, and 32 per cent of world phosphate exports.
Here in North America, currently, all eyes are pointed at the nitrogen market, and this is mostly in part to Hurricane Ida. The fertilizer plants in the United States have been built sturdy, and for the most part, came out unscathed. However, as Linvillle points out, you can’t do anything if the electricity is out, and that’s exactly what happened with the Category 4 storm.
Looking at the rest of the world Linville, notes that “European nitrogen production has effectively stopped,” as their natural gas price jumps up to $25-$30/unit. With these high prices and input costs, it makes it almost impossible for a plant to be able to afford to stay open.
I’ll just keep the bad news rolling for #fertilizer:
In case you missed it, natural gas prices spiked to over $6MMBTU in late day trading.
Guess what is a main input for all #nitrogen fertilizer products…
Hopefully this is a one day surge…then again, it is 2021.
— Josh Linville (@JLinvilleFert) September 28, 2021
Of course, this brings us back to China. “As much as they want to keep phosphate home, you better believe they are going to keep urea home. So all of a sudden, we’ve gone from a situation where this summer there was a little bit of a reprieve of the prices that were out there, and now suddenly everything is skyrocketing.” (Story continues below interview)
Linville also shared some updated ratio graphs of fertilizer vs. corn. From it, you can see that comparatively speaking from prior years, this ratio has jumped into all sorts of directions.
“Those graphs, starting June 1, they always start looking at the December ’22 corn price. If you’re buying anything past June, you’re effectively buying it to put on the following spring, for next year’s corn crop. So when you look at December ’22 corn, that price is only $5.15 the last I looked at it. So those values are up compared to where they were last summer,” he explains. “We are almost three times higher than we were, and corn prices certainly haven’t tripled.
Pay more attention to the dotted lines. Better representation of where the market thinks we are going.
— Josh Linville (@JLinvilleFert) September 24, 2021
However, the question isn’t just surrounding how high fertilizer prices could go — it now has many wondering if they will even be able to get their hands on it. The midwestern United States is concerned, so do we need to be even more concerned in Canada?
Linville says he’s been fighting this narrative of short supply, mostly due to his fundamentalist roots, and believing that eventually the price will get high enough, that the market will eventually work itself out through the basics of supply and demand. However, the most frightening aspect of this is, how high of a price do we need to reach before this happens?
“When you start thinking through some of those metrics, I’m afraid we’re going to start challenging 2008 highs. That is very very scary. I actually looked at where corn prices were back then when we started challenging that. We had corn prices near $6 for the next December crop. Today we’re $5.15. When I update these graphs later in the week, I’m afraid they are going to beat the 2008 ratios,” he explains.
When it comes to the farmers’ perspective, Linville says he understand not wanting to have the conversation on where your intentions are to your supplier, because you are afraid that information could be used against you.
“You’ve had enough snake oil offered to you. You know what to watch for,” Linville says. “This year, when you look at where these prices are, there is a lot of risk that is associated with it. The retail sector and the trade sector are not willing to carry that risk so they are not willing to buy it ahead of time and just hope that demand is going to be there.
“The single most important thing I can tell people is you need to have that conversation with your supplier. You don’t have to buy [fertilizer], but you need to at least say ‘these are my intentions for the fall, these are my intentions for the spring. I’m not comfortable pulling the trigger yet, but this is what I’m planning to do.’ At least give them a fighting chance to try to get ready for it.”