International phosphate prices have tumbled in 2019 as supply has far outstripped demand but they could start climbing this fall, says an analyst.
“I do see more upside to it, I absolutely do,” said Josh Linville, fertilizer analyst with INTL FCStone.
Phosphate was trading in New Orleans for around US$300 per tonne at the beginning of August.
“We are down $100 a tonne off of last fall/early winter,” he said.
By contrast, retail prices of phosphate fertilizer have been trending higher in Western Canada, according to Alberta Agriculture, although prices did begin to tail off in July.
The troubles south of the border started in 2018 when U.S. farmers harvested an enormous crop that depleted soil nutrients.
Growers were geared up to replenish those nutrients that fall but a late harvest and early winter kept them off their fields.
That pushed fertilizer application into spring 2019 but once again farmers were kept off their fields by a late thaw and persistent wet weather.
The reduced demand and depressed prices have hurt the bottom line of Mosaic, one of the world’s largest producers of finished phosphate products.
The company reported a net loss of US$233 million for the second quarter of 2019.
Corrine Ricard, Mosaic’s senior vice-president of commercial and supply chain, estimates 800,000 tonnes of phosphate demand evaporated.
“At the same time we had a million tonnes more imports into the U.S. and so that really exacerbated the problem along with the flooding along the river,” she told investment analysts during a webcast.
“So these tonnes were trapped in the lower Mississippi (River) and traders started liquidating those positions very aggressively when they couldn’t get tonnes up in country in time for the spring season.”
She said that caused prices to quickly plummet.
Linville said Morocco has been flooding the U.S. with product.
“They are going to continue slamming this stuff into the U.S. market. They want this market share and they are doing it by sending vessels over in this direction,” he said.
China is another big global supplier of phosphate but Mosaic president James O’Rourke thinks the low prices will accelerate a restructuring of the Chinese industry.
Many Chinese producers need to make substantial investments to meet new environmental regulations coming into force by the end of 2019 and the low phosphate prices may prevent that investment.
“It is our belief that marginal producers will cease production as we move into 2020,” he told investment analysts.
Even larger Chinese producers have announced a coordinated curtailment of production.
Reduced Chinese output is one reason for his optimism about where prices are heading. The other is industry estimates calling for 95 million acres of corn in 2020 after a huge setback in 2019.
“The North American crop, which received much less fertilizer than usual, will leave the fields in serious need of nutrient replenishment,” said O’Rourke.
“At the same time, higher grain prices will provide strong incentives for farmers to plant more acres and maximize yields next spring.”
Linville said he is “absolutely in lockstep” with the suggestion that there will be huge demand for phosphate fertilizer this fall and next spring.
He believes demand could surprise the market and instead of shipping product by barge up the Mississippi River, they may have to resort to rail or truck, driving up retail prices in the Midwest.
“If you’ve got the U.S. that’s under this much pressure I would presume you’re going to see the same type of stuff in Western Canada,” said Linville.
And if there is another late U.S. harvest, which is a distinct possibility due to extreme planting delays, that could prevent fall application yet again.
“I hope we don’t have that. We don’t need that stress,” he said.