Prices for potassium chloride, the most common form of potash fertilizer, dipped in the third quarter, but global demand is expected to climb in the coming years amid supply shortages, which will keep prices strong as companies around the globe invest in new production capacity.
Investors and analysts were taken aback by recent sharp price declines, but that hasn’t diminished the optimism by companies like Nutrien that are moving forward with expansion plans. While demand faltered in North and South America this summer, it's expected to come roaring back as global supplies remain constricted over the next few years, says Kwadjo Ahodo, a London-based senior research analyst for S&P Commodity Insights.
It's a perspective shared by Nutrien CEO Ken Seitz.
“The long-term fundamentals for our business remain very strong and the challenge of feeding a growing world has not abated,” Seitz said in an explanation of the company’s third quarter earnings report. “In fact, over this past quarter, we have seen further pressure on global food supplies that will need to be addressed for several growing seasons.”
Nutrien is planning to bring new capacity online gradually next year to produce millions more tons of potash in Canada. Across the Atlantic, Anglo American is scheduled to begin producing an additional 10-13 million tons annually by 2025 in the UK, while Russia’s Uralkali is planning a 2-million-ton expansion by 2025.
Those are just some of the many expansion projects in the works now, says Ahodo.
Back in April 2021, before the U.S. and European Union hit Belarus potash with sanctions, the freight on board price at New Orleans for potash was about $250 per ton, according to S&P data. By April of this year, that average was $900 per ton, after farmers in the U.S. and Brazil rushed to secure supplies amid dueling concerns over the Belarus sanctions and the outbreak of war in Ukraine.
U.S. sanctions on Belarussian potash – including on two major state-owned companies that export about 13 million tons of the fertilizer per year – are meant to punish the Alyaksandr Lukashenka regime for a fraudulent election, migrant smuggling into the EU, and its forcing of an airplane to land in order to arrest a dissident. Those sanctions took effect in April, a month after Lithuania blocked Belarus from using its port in Klaipeda for potash exports. Belarus is the third largest potash producer in the world behind Canada and Russia.
Russia began restricting its fertilizer exports at about the same time, and global demand – especially in Brazil – shot up. Brazilian imports in the first few months of this year were 37% higher than normal, and the price for potash spiked above $1,000 per ton, said Seitz.
Months later, stocks were abnormally high in Brazil, and U.S. farmers were holding off on purchases, waiting for prices to go down.
And prices did drop sharply in the third quarter in a situation that some call demand destruction, raising speculation as to whether companies like Nutrien should continue with expansion plans.
But U.S. demand is picking up as prices fall and Brazil burns through its stocks, says Ahodo, pushing global demand back toward a more stable rate of increase that he expects to play out over the next several years.
“In North America, inventories are coming down now,” said Seitz, “In fact, we are starting to see movement with Midwest pricing at about $640 per ton. Now we’re going to see replenishment of those inventories.”
But prices might not drop further as transportation issues in the U.S. threaten supplies. There is still the potential for a railroad strike as two unions continue to negotiate with the carriers and low water levels on the Mississippi River complicate matters further.
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“Cargoes are going up about a quarter loaded on barges,” Corey Rosenbusch, president and CEO of The Fertilizer Institute, told Agri-Pulse. “A lot of the docks where fertilizer is transloaded into terminals are off the main river, and access to those docks is a challenge.”
U.S. potash prices, Seitz said, “have been supported by restricted barge movements and a strong start to the fall application season. With respect to our decision to increase potash volumes, I would say that our view has not changed. We had a lull in demand in the third quarter, but the backdrop of ag fundamentals remains strong.”
Those fundamentals are especially strong in Brazil, which is producing more corn than ever as farmers continue to convert more land into production.
Brazil’s National Supply Co. is now predicting a record-breaking corn harvest for the 2022-23 marketing year. The country is expected to produce 5 billion bushels from all three of its crops.
And still, global stocks are expected to remain tight in 2023 for the sixth consecutive year, said Seitz.
“Crop futures moved higher in recent weeks and are indicative of multi-year strength in market fundamentals, with corn futures trading above $5 per bushel out to December 2025,” he said. That’s an “incentive for growers to increase acreage and push to maximize yields.”
So Nutrien is going forward with its production expansion next year and intends to ramp up production in the following years as well, said Pedro Farah, the company’s CFO and executive vice president.
While Nutrien, Anglo American and Uralkali will all be adding to global supplies, there will still be a significant deficit until at least 2025, said Ahodo, who spoke to Agri-Pulse on the sidelines of a convention held in Houston last week by The Fertilizer Institute.
Global supply is only expected to reach about 64 million tons this year, about 7 million tons short of demand. Supply, Ahodo said, is expected to reach about 67 million tons in 2023, but demand is also expected to rise, topping out at about 71 million tons.
Almost all of that gap between supply and demand is due to the obstacles preventing exports from Belarus.
And that prediction takes into account the ability of Belarus to regain its access to the world market. Belarus is already partially making up for its inability to export through Lithuania by shipping more through Russia, which is building a new dry bulk terminal to handle those Belarusian supplies.
Ahodo said he expects Belarus to be exporting at a normal pace by 2026, but until then there will be a market deficit.
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