Coronavirus disruption may increase fertilizer prices

The world’s second-biggest phosphate manufacturer says coronavirus is driving up the price of the commodity.

Mosaic says 30 percent of Chinese phosphate rock, 30 percent of its diammonium phosphate (DAP) and 45 percent of its monoammonium phosphate (MAP) are produced in Hubei province, which is the epicenter of the coronavirus outbreak.

China has implemented restrictions in the province to prevent the spread of the disease.

“In Hubei, phosphate production facilities have been on extended shutdowns and we understand the second round of shutdowns has been enacted from Feb. 16 through the 29th,” Rick McLellan, Mosaic’s senior vice-president commercial, said during a conference call on the company’s fourth quarter 2019 financial results.

Plants operating outside of Hubei province are running short of raw materials, causing some of them to reduce production as well.

“We believe the overall phosphate production shortfall will ultimately be two million tonnes in the first half of 2020,” he said.

Phosphate prices were already on the rise in North America due to reduced production by manufacturers and rising optimism by crop input retailers.

“Today, we are seeing more than a $65 per tonne improvement from the lowest prices traded in December,” said Mosaic chief executive officer Joc O’Rourke.

“Add to that the extended production downtime in China due to coronavirus and we see a much more constructive global supply and demand picture for the global phosphate market.”

He added that the surging demand and reduced competition from Chinese imports has depleted Mosaic’s inventories, causing the company to bring production back to full capacity before the end of the first quarter of 2020.

Josh Linville, fertilizer analyst with INTL FCStone, said market reaction to the threat of curtailed Chinese production has been muted.

“I think the way the market has responded is probably about right. It’s cautiously optimistic,” he said.

The caution stems from three consecutive seasons of poor phosphate application in the United States.

“We’ve got plenty of inventory. Let’s chew through that before we worry about what the rest of the world is doing,” said Linville.

The other reason for the tepid price response is the realization that China can quickly ramp up production.

“This is a country that built a 1,000 bed hospital in 10 days. They can play catch-up really, really quickly,” he said.

Mosaic acknowledged that some of the two- million-tonne shortfall of Chinese phosphate production in the first half of 2020 can be recovered in the back half of the year.

Linville said the phosphate/grain price ratio is as favourable as it has been in many years, so he encouraged farmers to consider putting “pounds to the ground” because that ratio could change in a hurry.

He said phosphate demand in the southern U.S. has been very strong, with some retail locations struggling to meet customer needs.

Linville expects a continuation of that trend in other parts of North America as spring arrives. The big question is, will the weather co-operate this time around?

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