Don't Get Caught in A Phosphate Bottleneck

March 19, 2014 07:11 AM
 

 

Anhydrous is priced $230 below year ago; potash about half of that at $115. Urea and UAN have all but recovered from the dramatic price slide that was set off by declines in corn futures last summer.

Phosphate has me scratching my head and as we look ahead to the spring application, DAP/MAP prices are currently running about $75 below year-ago. Part of the recovery here is due to declining production amid a 16% shortfall year-over in North American inventories.

Agrium reports in its March Crop Input Market Report that North American phosphate production fell 5% in January and another 9% the following month. Sendouts downstream have been strong through the winter as dealers resupply.Picture7

Many have suspected applications of both P&K will be low as corn futures are giving growers little inspiration to overextend on their inputs budget. But this may not be the case.

The general consensus of current ag thought has crop prices remaining low compared to years prior as long as until 2016. Political unrest in Ukraine is helping buttress U.S. crop prices and the South Americans are making beans easy to love. Many believe that problems with ag finance in Ukraine and the potential for all-out war will limit corm plantings there and that would help shave bushels off the global supply. That would be price positive for American corn, and likely wheat as well.

If growers believe production margins on the farm will stay low for the next few years, based on solid returns from the '13 crop, cash on hand might inspire growers to bank P&K this year and wait and see for next year. That could explain how inventories of phosphate are low -- based on expectations of low demand -- and why phosphate production has yet to answer the supply shortfall.

Potash inventories are high. Ammonia production is high, and so are stocks on hand. There is even a portion left over from last fall, when winter weather cut short the application window. Our wild card is the weather. Remember last spring when early spring rains -- and even some shots of snow -- had fields too muddy to be worked. That had more growers relying on post-emerge applications, mostly sidedressed UAN. A cool, wet spring is in the forecast and if that plays out, anhydrous applications may shift to UAN.Picture3

But growers had no better luck applying P&K last fall and the same weather constraints that could keep spring anhydrous applications at a minimum would also limit P&K applications. Perhaps that is what phosphate manufacturers are thinking. If UAN is currently overpriced, and anhydrous is underpriced, phosphate walks the middle of the road. We see little reason -- beyond the year-over margin -- for anhydrous to run up fast and furious.

The factors that do not scare us on anhydrous, however, make us uneasy about phosphate. Phosphate inventories are low, production rates are low and the expectation is for demand to be low as well. But if demand is strong in the spring, as I believe, there is a supply bottleneck looming for DAP/MAP which could lead to higher prices for phosphate by spring. We are currently 80% filled on spring phosphate. Downside potential is limited here, but expected new-crop revenue based on Dec corn futures has climbed above break-even for many growers and that may signal a shift in application intentions for spring.

If you are planning to apply phosphate in the spring and have not booked any yet, it is time to get on the stick.


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