Market oversupplied | Prices nearing a bottom, but cheap exports continue to flood market
Fertilizer prices are nearing a floor, says an industry analyst.
“By the time we get to December, we’re going to see the bottom of the market and it will kind of drift sideways through January and probably early February,” said David Asbridge, senior economist with NPK Fertilizer Advisory Service.
“And then, of course, we do expect kind of a pickup, a seasonal run up in prices.”
There have been reports of a dramatic reduction in fall fertilizer purchases in Western Canada as farmers wait for prices to firm up, but that hasn’t been the experience for the region’s biggest retailer.
Read Also
Agriculture ministers agree to AgriStability changes
federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
“Sales in Western Canada for fertilizer have actually been normal to probably a little above normal,” said Richard Downey, spokesperson for Agrium Inc.
It is a very different story south of the border.
“In the United States, it’s clearly well behind normal, really, for all three nutrients, but particularly for potash and phosphate fall application,” he said.
Asbridge said U.S. farmers have been delaying purchases because of a late harvest and a reluctance to buy into a falling market.
“Everybody is on the sidelines just waiting to see what’s going to happen next,” he said.
Prices for all nutrients are down because of an oversupply of product.
PotashCorp president Bill Doyle blamed customers’ “hand-to-mouth” buying on Russian potash producer Uralkali, which pulled out of a Black Sea marketing cartel and sent fertilizer prices plummeting.
“We have seen a lot of people over the years in charge of billions of dollars of assets in the fertilizer world do some pretty silly things, but this is probably the single dumbest thing that I’ve ever seen,” Doyle told investment analysts during the company’s third quarter earnings conference call.
Uralkali has been increasing its potash production.
Asbridge estimates the manufacturer is selling potash to the Chinese for $350 per tonne or lower since the breakup of the cartel compared to the last official cartel contract price of $400 per tonne.
The flood of cheap Chinese urea exports is another big factor in fertilizer markets. Asbridge estimates that the country’s manufacturers will ship a record 7.5 to eight million tonnes this year.
PotashCorp thinks it will be higher than that.
“We expect that there are going to be somewhere between nine and 10 million tonnes of (Chinese) urea exports,” Stephen Dowdle, president of PCS Sales, said during the PotashCorp conference call.
China is talking about reducing or eliminating its high tax on fertilizer exports, which is a sure sign the country is producing far more urea and phosphate than it can use.
“So we do expect that these higher levels, of certainly urea exports, will continue in 2014. And the world is going to have to adjust to these increased volumes,” said Dowdle.
Doyle said fertilizer is the most affordable it has been in nine years.
A DTN survey of U.S. retailers shows that urea prices dropped 26 percent from last year, ammonia has dropped 22 percent, potash 20 percent and DAP 17 percent.
Doyle thinks it is only a matter of time before prices bounce back, probably before next year’s crop is planted. Demand is expected to be strong because this year will likely generate the second highest net farm income in the U.S.
“You’re going to see a major rebound in demand for not only potash but the other fertilizers as well,” said Doyle.
Asbridge is advising clients who usually apply fall fertilizer to consider buying product now. Otherwise, they could face the possibility of fertilizer shortages come spring or a repeat of 2013, where they couldn’t get onto their waterlogged fields.
He doesn’t believe prices are likely to fall much further than they have already, but those who are interested in spring application might still want to wait until December or January in case prices drop some more.
“There’s really not much upside to any of these markets,” he said.
Asbridge expects U.S. growers will reduce corn plantings by three to five million acres, which will reduce overall fertilizer demand. However, he agreed that the pent-up fall demand could push prices up once it materializes.
