Got fertilizer? What you need to know

Shay

Foulk: Hey everyone, Shay Foulk here with the Ag View Solutions team. Just wanted to give you all a quick reminder before we jump into today's podcast on fertilizer of our conference that we have coming up here, uh, the end of January. We're about 10 days out on closing our registration here, so if you've been thinking about attending the conference or want to learn more about it, please go on to agviewsolutions.com, hit the conference tab at the top of the page and you'll see all the information on the speakers, the different topics that we have lined up there. It's a really awesome lineup. And probably most importantly, the networking that's going to be going on there is going to be phenomenal. Some really awesome operations we know that are already signed up and excited to have just the top level, these executive level farm operations from all across the country.

So if you maybe have some other winter conferences you're looking at or haven't decided on what your plans are, You know, there's still some pretty good flights headed out to Phoenix this time of year. So again, head over to agviewsolutions.com, check out the conference tab at the top of the page, and if you have any questions, as always, be sure to reach out to us, cbarron@agviewsolutions.com. And thanks again for listening to the Ag View Pitch. Welcome back everyone to another episode of the Ag View Pitch. Today you have Shay Foulk and Special guest out of StoneX, Brian Benarc. Thank you so much for joining us today, Brian. I really appreciate it.

Bryan

Bednarek: Yeah, appreciate you having on— having me on here today, Shay. It's a good opportunity to chat about fertilizer and kind of what the markets are doing right now and what we expect to see here in the foreseeable future.

Shay

Foulk: So I heard from a source that you have a crystal ball and you're going to be able to tell everyone listening today exactly what's going to happen in the fertilizer market. Is that right?

Bryan

Bednarek: You know, I wish I did. You know, I had a crystal ball though. I don't know if I'd be sitting here.

Shay

Foulk: Yeah, yeah, I'd probably be in Vegas or something too. But you know, your title with StoneX there is Risk Management Associate, and that probably means a lot of different things. But can you just tell the listeners here on the podcast, you know, what your role is and why we're having this discussion with you today on the fertilizer side?

Bryan

Bednarek: Sure, yeah. So Risk Management Associate, you know, it's kind of really what that means. How do we manage risk? How can farmers and producers manage risk? How can wholesalers, fertilizer retailers, importers, how can they manage risk? You know, utilizing some of the futures and swaps tools that are available, as well as just having good information flow to make good decisions regarding fertilizer purchasing and subsequently sales if you're in that, in that space as well.

Shay

Foulk: That information is so crucial. And I'm going to give you a plug here today. You know, one thing that StoneX has done really, really well, there's a couple presentations that we were looking at here beforehand on just how these fertilizer and nitrogen prices have developed over time. And I know that's a service that you all have. So I would just encourage any listeners that are maybe interested to go on and check that out. They can probably find that online on StoneX, can't they?

Bryan

Bednarek: Yeah, correct. You know, we have some links and whatnot that can kind of get you to some of the reports that we're creating here at StoneX.

Shay

Foulk: For sure. Yeah. And again, it's something that you got to have that key information. I think StoneX has done a really good job of that. But, you know, as we have this fertilizer discussion, I think the first place I want to start is on the nitrogen side of things. And over the last 2 years, we've had a little bit of a quote unquote perfect storm for this price action that we're seeing right now. And, you know, I made the comment to you here offline, I just came back from a retailer meeting, and it feels like someone kicked my dog. I mean, just talking at the gut-wrenching changes that we've had. And there's a lot of decisions to be made. Can you, can you talk a little bit on the nitrogen background here over this last 2 years? What's been going on that's had such a drastic impact on this?

Bryan

Bednarek: Yeah, you know, I think really we do have to go back kind of a couple years to just kind of paint the whole picture of what really happened here. You know, if we go as back as far as the summer of 2020, nitrogen products in general, urea, UAN, anhydrous, we were kind of bottom feeding on maybe 10 10-year lows on prices, just kind of hanging out. Just really some cheap nitrogen, to be frank. And then we kind of rolled into that fall. And we started seeing grain prices rally. And, you know, nitrogen market more than any other fertilizer market is tied really closely with the grain prices and specifically corn. So as grain prices had that counter-seasonal rally in the fall of 2020, That was kind of one of the first catalysts that we saw in the nitrogen market. And then once the— we kind of have hung on to those grain prices as well since that time frame.

Then we hit the winter in 2021 and we saw that widespread cold snap. I mean, we were talking Arctic freeze all the way down into the panhandles of Texas, Oklahoma, and And what's down there is a lot of energy production. And with that, a lot of fertilizer nitrogen production all the way down into Texas and Oklahoma and even parts of the, you know, kind of the greater Gulf region. And with that, we saw plant outages because cold temperatures, high pressure, fertilizer production just doesn't thrive in that environment. And the need for natural gas just to be diverted to home heat areas that aren't used to seeing that extreme weather. They needed the energy for heat in municipalities, so it's getting diverted. And so we just started seeing some production, some production go offline, and that's just, you know, spurred the market even more.

I think UAN was probably one of the main nitrogen products that really got hit in production at that time. Of course, ammonia as well, but UAN was a really, a really big deal. And then we kind of, you know, keeping on UAN, We roll into June of last year, and one of the major US producers asked for a countervailing duty and anti-dumping case to be investigated by the Department of Commerce and the ITC, International Trade Commission. So they wanted to look into anti-dumping into two major importers, Russia and Trinidad and Tobago. And those two origins alone account for 80% of offshore imports into the US. I'm just a large part of our market. That just was another, another piece just to kind of keep driving us higher. Then we kind of tack on a really big player that we chat about in the ag space a lot, China.

China started warning about export taxes and export restrictions also last summer. And then we kind of roll into Hurricane Ida. And that really impacted the Gulf. Largest nitrogen facility in the Gulf is in Donaldsonville, Louisiana. That facility went down for, you know, a few weeks due to the hurricane. There's other production facilities down there, same thing. They were offline, just really affecting the supply in general of nitrogen fertilizers. And with those plants slow to come back online, we were just in a tough kind of S&D environment with just a lack of supply and just kept spurring this market higher. And we're kind of rolling into the fall of this year, we start seeing natural gas prices overseas, really affecting production elsewhere. And that, that was another reason for the US and North American market to follow suit.

Then we kind of get the realization that China wasn't joking, they really were gonna crimp some of their exports to protect their domestic market. So they went ahead with curbing exports, and shortly after, to protect kind of their domestic market, Russia followed suit with some kind of export restriction programs. And it's just kind of taking away from the market some available tons to maybe move into the US market and just the global market. It's just readjusting these trade flows that we have to account for, even if it's not directly in the US and North America. It's one big market.

And then, you know, we kind of get to where we're at today with big grain prices, still maybe some, some S&D, lingering S&D issues with those production issues that we saw over the past year, kind of sitting at prices from 10-year lows to sitting at 10-year highs, where, you know, we've whipsawed all the way back today.

Shay

Foulk: So let's go back 45, 75 days ago. The nitrogen fall demand went through the roof, and a lot of that was bought at, you know, prices that were not at these peaks, right? Some people did a really good job of booking in advance, making sure that they had some of their expenses prepaid as we headed into this season. But a lot of application went on in the fall all across the country. Conditions favored it. Crops came out a little bit quickly due to quicker drydowns in a lot of regions. And that probably had a pretty drastic effect on some of this that we saw with pricing. What does this look like as we move forward into the spring? I'm not— again, I'm not asking you to look into a crystal ball here. But when you think about it from your perspective, what does the US producer need to keep in mind for making continued decisions into the next few months here.

Bryan

Bednarek: Yeah, no doubt we had a solid, solid anhydrous run this fall. Conducive, conducive weather, a long season. You know, maybe we didn't, didn't think we were going to have maybe mid-October, and especially maybe parts of Illinois and even western Indiana, just some wetness there. But when, when that wetness subsided, rigs were running all the way up into the first, first half of December. And so, you know, as guys are kind of looking ahead, you know, when are they— are they going to step back in and buy some other side dress needs today, or top dress needs, or do they maybe wait? And kind of right now, you know, if there is a timeframe where you might see some softness, it's probably going to be in that middle half of Q2. Where we're kind of looking at sourcing or purchasing those topdress and sidedress tons.

So, you know, if you had some fall, a good fall application of N, and you're maybe looking for that second round, and you just don't really like the price today, you know, if there's an opportunity, it's going to be then. But until then, you know, in the next couple months, I think we're going to stay pretty firm as far as tightness. On the nitrogen side of things. Globally, we're just tight on product. I don't think we're gonna be short on product. I want to make that clear. There's gonna be product available, but it's just gonna be— it's gonna be in the right place at the right time for when this, when this kind of spring application season kicks off.

Shay

Foulk: How long can you sit on the hot coals until you feel uncomfortable enough that you want to make a decision? And it's a balancing game. And we're having that discussion with a lot of producers as well on just You know, what do we need to be thinking about? And for those that are, you know, prepaid or whatever else, and 100% applied, probably feel pretty comfortable with where they're at right now. But yeah, just a lot going on on that side of things. You know, one thing that you mentioned there is kind of this price action and how the commodities move forward. And a question in people's mind right now is, how is this acreage going to map out? Of course, this is always a discussion we start having about this time of year. You know, we shift from South American production, that kind of goes on simultaneously with, well, where's the acre game going to map out?

And right now, you know, we've seen some advantage in corn depending on the region, depending on the producer. And what needs to happen in the commodity price game to have an impact either way? You know, does corn still have a clear advantage to where you think it's going to buy, buy bushels, buy nitrogen, buy acres as we move forward? Or is it a little bit up in the air right now?

Bryan

Bednarek: I think right now, you know, I think the grain markets are buying, buying some corn acres. You see some different academias, the institutions that are kind of trying to forecast what the acreages might be. And if we're looking at maybe a 94 range million acres of corn, you know, I don't, I don't think that's too far off today. Like you said, Shay, there still seems to be some, some margin available and favoring corn over beans. You know, even at some of these elevated prices, it's taken off a little bit of that top end for sure, with the price of nitrogen today. But there's still some opportunities, I believe, to make some solid margin out there. And I think guys want to plant corn. You you get in the core Corn Belt, Iowa, Illinois, Indiana, southern Minnesota, eastern Nebraska, those guys, you know, they're not going to stray too far from their, their normal rotation.

But I still think if they have some of those, maybe 10 to 15% of their acres, I think in my mind, they're favoring corn today. And I think that in turn is going to demand a little more N out there. Just with the acreage. If we're looking at the 94 million, there should be some solid end demand. And we really haven't seen demand back off into this kind of prepay season yet. I mean, maybe on some of those quote unquote fringe acres, they're backing off at some of these high prices, but they were fairly active on the way up as well. So maybe favoring some corn acres in like northwest Minnesota, Red River Valley.

Shay

Foulk: So one, one thing that I want to mention about fringe acres, because we work with a lot of clients in these, you know, quote unquote fringe acres, and they just kind of laugh and chuckle and they say, hey, that's fine, everybody else can think that we're fringe acres, and they don't need to worry about the fact that we can grow 160, 180, 200 bushel corn and be a whole heck of a lot more profitable than some areas. And what I want to mention there is not to throw them under the bus or to say anything there, but maybe less of the fact that the quote unquote fringe acres is the fact that we're seeing profitability in some of the other crops and some of the other small grains as well. I mean, of course oats have had a huge run here recently. Rye prices have held strong.

You know, there's other markets that are impacting this too that, you know, some producers that we've talked with, it's, you know, why would we put this many dollars at risk especially in some of the volatile weather patterns where, you know, 3 years out of 10, we have an absolute catastrophic failure in our crops. And, you know, that's just how some of those regions are in the quote unquote fringe acres. You know, maybe it's less of the fact that, you know, they're not wanting to spend the dollars as it is that there's profit to be had in other areas. You know, how would you react to that when you think about some of the other commodity grain action that's going on right now?

Bryan

Bednarek: Yeah, you know, for— if we're going to look at maybe small grains, winter wheat, I think, you know, where the wheat prices are at right now, they're also, you know, favorable. Maybe not as input intensive, but we still need nitrogen when it comes to wheat, right? Where there's still demand out there. We look at cotton acres this year, there's demand there as well, you know, parts of the South, you know, there's this Southern US where they're looking at that. Prices seem to be favorable in that market as well, and there's still nitrogen demand there. And we feel like there's more acres getting pulled up on cotton, um, a few more acres on wheat this year too. So that's still, that's still nitrogen demand any way you shake it out, right? More corn acres, some of these, uh, other, other crops, there's still going to be some nitrogen demand.

But maybe just not as much capital-intensive fees that we need this crop going in. And there's, they're viable options as well.

Shay

Foulk: Yeah, thanks for hitting on that. I think that's important. I think sometimes people forget that, that these quote-unquote fringe acres, while they're fringe acres for corn and soybeans, they have so many other options, you know, especially as you get north and west, that maybe, maybe the I-states discredit that a little bit. So You know, moving away from that, I want to talk a little bit about the dry fertilizer, you know, because that's just as important. We've seen a huge amount of increase there as well, and a significant amount of volatility. So if you can maybe give, you know, a 1 or 2 minute background on how the fertilizer has changed here over the last year to 18 months and some of the conditions that have impacted that as well.

Bryan

Bednarek: So when you say dry, you mean like P and K, correct? Yes. Okay. Yeah, and so kind of a similar, similar story as nitrogen. We were looking back summer of 2020, we were sitting on, you know, 10-plus-year lows in MAP, DAP, potash as well. And then kind of same thing as well, we saw a grain appreciation in the fall. Another great fall for applications in 2020 that really depleted some— just depleted inventories across, across North America, really, in general. There's a lot of places where there's a solid fall application. Grain prices were allowing producers to maybe get back and put maybe 100 to 120% when it comes to phosphates down down. So we saw strong demand and maybe a little additional demand there as well.

Everyone also knows about the countervailing duty that went on in the phosphate market that cut out Morocco, which was a huge importer to North America as well as Russia. So we just took off a massive chunk of our potential supply. Which pushed the market higher. As we kind of, you know, roll into this, this year as well, or this past fall, another conducive solid fall run. Grain prices were there, producers maybe cut back a little bit, but there was still a solid application and just solid demand. And so we just continue to see just firm pricing. And then we look at China again, They, they, along with nitrogen, have put a kind of export ban. They, they're 25% of the global trade, so they are a significant player in the phosphate market, especially in places like India and Australia where they're predominantly pulling tons or looking and favoring Chinese tons.

And when you take a player like that out of the market, they're looking to other sources that could potentially come into the North American market. So it's just battling for those tons available is just keeping us where we're at today. And same thing with Russia as well, another player where they're looking at just making sure they're protecting their domestic market. We're going to just put a few things in play to ensure that we're not letting all these tons flow out into the gold market. So they're doing a little bit of restriction as well today.

Shay

Foulk: You know, one thing you and I had mentioned in correspondence kind of offline here was that, you know, maybe the US markets are a little disconnected from global markets right now. Can you maybe expound on that a little bit and, and dive into that?

Bryan

Bednarek: Yeah, from like a nitrogen standpoint, we'll just, we'll just use urea as kind of the base for nitrogen. If we're looking at like an Arab Gulf value, they're sitting at, we'll call it, at $875 FOB, or, you know, just dockside value today. And the NOLA market right now, as of today, we traded down to a low of $620, $630 a short ton load of barge. So that's just quite a discrepancy if we're converting that $8.70, $8.75 Arab Gulf value, adding on freight and then converting that from metric tons to short tons, that's right around a loaded NOLA barge at $8.40, $8.50. So we're— and then you— what we're trading at today, I mean, we're $150, $200 away from a replacement value. And that kind of, that kind of Arab Gulf value was kind of set recently with an Indian urea tender.

It's a great way to kind of gauge the global market, seeing where India has a tender system and they allow global traders and producers to offer tons to them for them to buy for their markets. And it just really is a, a great benchmark to where the globe really is at. And then we look at where some potential product that is produced, like the Arab Gulf, a lot of that product can come to the US. We're just looking at a steep discount. And similar stories on, on phosphate today. Right now the US market's pretty quiet in the phosphate space after the, the solid fall run. We don't have a whole lot of demand peaking out right now. But we're still sitting at, you know, $100 to $150 a short ton out of the global market. We're just kind of sitting on an island right now. And it's really just comes down to price point where we're at, you know, these high prices just have people on edge.

Shay

Foulk: So what's the watch out for that? I mean, what's the actionable if you're the producer that's hearing that?

Bryan

Bednarek: I think right now, you know, If the numbers work for you, they work for you. But if you're looking for something to maybe turn the market a little lower, it comes down to China. Do they start exporting into the market? Do other origins start exporting heavily in the market? And the number one other origin outside China in my mind today is Russia. Do they start letting their tons because they produce nitrogen and P&K? They're also just a big global player. If they start exporting tons, then I think that's something where you can look at an opportunity to really price, start price shopping and saying, hey, where are you at today? I don't know if I'm comfortable, but some of these global factors should maybe put some pressure on the market and give an opportunity to buy.

Shay

Foulk: Gotcha. I appreciate that perspective. And that's something that you just, you don't hear every day on the market news, right? You don't hear that on the, on the, on the radio. And I think that's really good insight. Um, you know, I think I would be remiss if I, if I didn't ask this question. I just want you to react to it because I know a lot of farmers have it on their mind with everything else that's going on. And in particular to your comment of, you know, a lot of these fertilizer prices, particularly nitrogen, following commodity prices, right? So when I say the two words price gouging, what's your thoughts there?

Bryan

Bednarek: You know, I don't really think it's— I don't really believe that's happening. Um, we just look at the market, and especially on nitrogen, there's just enough global players to where that's, that's a pretty true market in my mind, you know, right? It's— I don't, I don't think there's a lot of price gouging going on. Obviously we saw the appreciation, but we just have to look back and say what was part of that. If you think price gouging was occurring, well, the grain market was also appreciating too. So that was a big factor. And then we just look at some of these geopolitical factors as well as just production factors that really affected the supply and demand of the globe. And so it was just, it was really a perfect storm. So I don't, I don't see it as price gouging today anyway. And I, I just, I don't think it's fair to say that's, that's the case.

You know, maybe if everything stayed constant and we still saw prices appreciating, maybe another $100, okay, then maybe that's something that's in the conversation.

Shay

Foulk: Right. And I know listeners can't see this, but I'm smiling right now because it's funny, right? When you have producers that are making these decisions, it gets emotional, right? And these are real dollars and these are real people that are making these decisions. And there's a lot of second-guessing that goes into the fertilizer game and the nitrogen game. And you can look back, you know, I was telling you offline, I look back at an opportunity I missed out on, I probably am costing myself $170 to $180 an acre from not making a decision earlier, if I price things today. Now, who knows what that looks like moving forward. But it does get emotional, it does wear on you a little bit.

And, you know, sometimes people like to turn to the factors that they can't control or feel that they don't understand as well and say the terms, you know, price gouging, or They're coming after us, or it's the retailers putting a pocket in it. I agree with what you're saying. I don't think when you look at the information, you look at the supply and demand, and you look at some of the implications of what's gone on in the global market here over the last 2 years, I agree with you wholeheartedly on that. I just appreciate that perspective. As we wrap up here, for the listeners of the podcast, any final thoughts as we move into 2022 get heavy into Q1 and then start looking at Q2 prices and some of the decisions to be made there. What are your lasting thoughts that you want to leave with the listeners of this podcast?

Bryan

Bednarek: The one thing I really want to leave is really know your numbers. I think that's a big thing that you talk about quite frequently, Shay, on this podcast and just in general, what you're about is knowing your numbers. And the current price of fertilizer today, it might not work for everybody. It might not work for everybody, or a certain farmer on every acre, but there's gonna be some acres where it does work out. And if you have an opportunity to lock in some margin, even at these prices, you know, I think, I think you want to take that opportunity. You know, if you have a little freedom and you can wait a little bit, I think there's some potential for some opportunity to hopefully this grain market stay stays where it's at or maybe gives us even a little better pricing.

But, you know, if you're looking at maybe some of those side dress tons, top dress timeframe, and you have some flexibility, maybe give yourself an opportunity to wait a little bit. But don't walk away from making a margin even at these high prices. It's emotional. I get that for sure. But don't let the emotion take over the numbers.

Shay

Foulk: Brian, thank you so much for the time here. If, you know, listeners to the podcast want to see more of the work that you do, reach out to you, see what StoneX has going on, what's the best way to kind of get in touch there?

Bryan

Bednarek: Yeah, for sure. You know, email and phone. I'm always, always open for a conversation so I can pass along my email information, or if you want that right now, and phone number, and as well as our website, www.stonex.com. You can go find the fertilizer tab under the list of commodities, and that'll kind of take you and give you just a quick overview about what we're all about at StoneX in the fertilizer department.

Shay

Foulk: Awesome. Thanks again, Brian. Really appreciate it. And we'll probably be touching base with you here in the next couple months again, wrap up Q1, move into Q2 to see what your crystal ball says then.

Bryan

Bednarek: Sounds great. Looking forward to it. Hope everyone has a great Q1 and a great spring planting season. Absolutely.

Shay

Foulk: It is, it is. Planters are ready to go. So thank you everyone for listening to another episode of the Ag View Pitch, and we will catch you next time.