P&K Today: December Corn vs. Investor Panic

October 10, 2013 10:15 AM
 

As harvest makes way for fall fertilizer applications, the market will look to capture the best fertilizer price it can, and this market carries some real upside potential for potash in the near term. Meanwhile, phosphate bounces between pressure from potash and and the realities of corn futures.potash2

Corn prices are depressed, presently at $4.33 1/4 in cash and despite word from Uralkali that they believe potash pricing will move sharply higher early in 2014, demand remains low.

On the impact of the dissolution of the Belorussian Potash Company (BPC), much was made about Uralkali's ability to oversupply global potash stores at a low cost, and the line just two weeks ago was that potash pricing might just decline forever. With the release of quarterly results last week from each of the two former partners in potash, the divide between their fortunes is striking.

Uralkali has done very well, reporting increases in production and sales with just a little headroom left in production capacity. Belarus has not fared nearly so well with two of four potash mines currently in shutdown, and tenders for November and December totaling only 300,000 tonnes to Uralkali's September sendouts of 1 million tonnes.

The result here is that Uralkali can stop ringing the 'lower price bell' -- they would be silly not to stop the bleeding, especially when U.S. demand is overdue to perk up.

This week --

  • DAP $89.63 below year-ago pricing -- down $11.28 on the week to $549.45/st.
  • MAP $93.73 below year-ago -- up 50 cents this week to $566.97/st.
  • Potash $$106.84 below-year ago -- up $1.09 to $493.99/st.

 

The following is an updated table of P&K pricing by the pound.

P&K pricing by pound -- 10/10/2013

DAP $P/lb

MAP $P/lb
Potash $K/lb
Iowa
$0.64
$0.55
$0.42
Illinois
$0.56
$0.52
$0.39
Indiana
$0.53
$0.49
$0.41
Wisconsin
$0.53
$0.51
$0.38
Minnesota
$0.58
$0.55
$0.41
South Dakota
$0.55
$0.53
$0.40
North Dakota
$0.57
$0.52
$0.39
Nebraska
$0.57
$0.55
$0.44
Missouri
$0.59
$0.55
$0.42
Kansas
$0.58
$0.54
$0.43
Ohio
$0.58
$0.53
$0.40
Michigan
$0.67
$0.56
$0.39
Average
$0.57 3/4
$0.53 1/4
$0.40 1/2
Year-ago
$0.67
$0.62
$0.50

 

Wholesale --

MosaicCo reports DAP moved lower over the past week at Tampa and Morocco, but moved slightly higher at NOLA. MAP for Brazil fell $8.00/tonne while raw phosphate rock from Morocco rolled sideways. U.S. ammonia edged higher while sulfur moved sideways. Phosphate1

Wholesale MOP moved slightly lower in the U.S. cornbelt as tons arrive downriver.

In retail action, DAP moved $11.28 lower to a regionwide average of $549.45; MAP 50 cents higher to $566.97 and Potash posted its first upward movement in weeks adding $1.09 to start the week at $493.99.

Near-Term Outlook --

  • Look for potash to move higher near term as influenced by December corn.
  • Increases in ammonia and an end to the bleeding in potash will hold phosphate in place at or near current pricing.

 

Potash has never been known to be a price move leader. Gentle potash generally just lays there, leaving the bears and bulls to feast on nitrogen laced phosphate volatility. A look at just how far potash fell by percentage year-over shows a 17% decline since the same time last year. By comparison, anhydrous ammonia has shown very strong signs of a seasonal bottom after shucking 16% year-over. We generally credit anhydrous with the strongest influence over nutrient pricing, and that would suggest potash needs to reverse and add at least a full percentage point back to its losses.

Phosphate may hold the key here. Currently, our calculations show anhydrous and potash underpriced compared to Dec corn futures. During the period that K and NH3 fell 17% and 16% respectively, DAP and MAP each fell 14% -- MAP went as far as 14.1%. The suggestion here, given that NH3 and K are underpriced to Dec corn, is that NH3 and K will correct slightly higher to capture Dec corn revenue. However, there is the potential for DAP/MAP to correct to the sluggardly potash, which prefers not to move at all.

Potash showed it can have a major impact on fertilizer pricing, and suppress phosphate pricing by pulling phosphate into decline. Remember, this is all amid dramatically lower corn futures.

Phosphate is currently priced in line with expected new-crop revenue based on Dec corn futures. The trend suggests phosphate may move a few points lower to fill the gap between itself and K, but the more likely scenario is that phosphate will lie still and wait for potash and anhydrous to catch up with Dec corn.

 
Current price/short ton
Percent of year-ago
Potash
$493.99
-17%
DAP
$549.45
-14%
MAP
$566.97
-14.1%
NH3
$707.74
-16%

 

Perspective --

If you have not yet booked fall potash we have recommended you have 75%-100% of fall needs filled by now. Add to that the upside risk we see for spring and book at least 20% of spring needs as a hedge against a winter potash correction. The Russians who sent potash down the stairs like a slinky are the same guys who now say potash pricing in 2014 will be higher than today.ZCZ k NH3

The meat of it for the U.S. grower is that we don't really care what the price of K is in China or Russia or anyplace else but Saskatchewan. When news of the impending declines in K pricing hit PotashCorp CEO Bill Doyle's desk, he publicly balked at the notion that a single company or event could sway market pricing beyond the constraints of production margins. Canadian product will be cheaper than it was last year, but PotashCorp will not let the bottom completely fall out.

This will go one of two ways depending on what you believe drives P&K pricing. Ag purists will cling to Dec corn, as I do. That puts potash moving higher near-term and phosphate staying put. But the case has been made with the BPC episode that potash has more influence over the market than was once thought, and so does investor pressure, making P&K, in the minds of some, more likely to take direction from shareholders and upstream producers. That scenario would hold potash in place and chase phosphate lower near-term.


 

 

 

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