Panelists for the Green Markets Spring 2016 Fertilizer Outlook webinar on March 2 addressed key issues impacting fertilizer supply and demand in the U.S. and Canada for the upcoming planting season.
The theme of the event was reflected in its subtitle, “An Uneasy Start to the Season,” with speakers noting falling commodity prices, low farm income, delays in fertilizer buying, and a poorly stocked supply chain.
Matt Carstens, vice president of crop nutrients for United Suppliers Inc., offered what he called a “state of the union” for agriculture, noting that “very low” farm income and pressured margins have pushed lesser players from the field. Successful operators, by contrast, have “quite a pile of cash to invest,” and “maximizing yields is key when crop prices are low.”
As a result, Carstens said he expects minimal cuts in nitrogen rates this spring, although he acknowledged that lower-end operators are under a “tremendous amount of pressure” to cut phosphate and potash. Despite this, he said potash is a “good value” at current price levels, and now is “a really good time for farmers to invest in potash.” Although he expects phosphate rates to be trimmed to minimal levels to ensure yields, he noted that improved potash volumes could drag phosphates along.
As for planting intentions, Carstens said corn prices will remain below their five-year average, but corn still offers a better return than alternatives. “Every farmer wants to plant corn,” he said. “That is their livelihood.”
Carstens said the stand-off in fertilizer buying is now coming to an end. “We have had a very tough six months, without a doubt, but the outlook is positive,” he said. Regarding application rates, he noted that “in geographies that are running today, there is no doubt that they are at or above expectations.” Although grower prepay purchases were light and logistics will be tested as a result, he said the industry “always finds a way. I see this spring as not much different than in the past.”
Looking at spring supply, Carstens said urea is likely the most uncertain due to lower imports. He noted, however, that domestic urea production and carry-over stocks are up, so he continues to think that inventories will be adequate to meet demand.
Jeremy Goodfellow, crop nutrient purchasing manager for La Coop fédérée, said the Canadian/U.S. dollar exchange rate has offset falling nitrogen prices for Canadian operators. Despite significant price risk, he said Eastern Canada experienced normal fall application rates thanks to favorable weather, and the region’s fertilizer distribution chain is generally full heading into spring.
Goodfellow said Eastern Canada is expecting “strong and early” nitrogen demand due to a significant increase in winter wheat acreage and expectations for “consistent” corn acreage in the region. “We’re shaping up for an early and quick planting season, like in 2012,” he said, although he cautioned that ice coverage on the Great Lakes is very low at only 15 percent, and this typically results in a wet spring for Eastern Canada.
When pressed about fertilizer prices, Goodfellow said he thinks the potash market has likely hit bottom, and that buying interest has now started at the new pricing levels. “It’s a good value for farmers, so there’s no reason for them not to buy,” he said. “It makes tremendous sense for farmers to stick with normal rates, although I’m not sure they’ll go heavy.”
Talon Custer, industry analyst for Bloomberg Intelligence, addressed the rail logistics landscape for 2016. He said railroads saw “big improvements” in performance in 2015 over 2014, but demand was weaker than expected after a record amount of volume in 2014.
Custer said CSX is predicting an “unfavorable outlook” for fertilizer volumes in 2016 due to low crop prices. He said Union Pacific, Canadian National, and Canadian Pacific are “less so, but certainly not bullish” on fertilizer.
“Mild weather and lower demand means less congestion and fewer bottlenecks, and this is currently happening,” he said. Railroads had to “quickly flip the switch” in 2015 after increasing staff in 2014 and spending more to align resources. He said rate hikes “have drawn ire from customers,” but capacity for fertilizer transportation shouldn’t be an issue this spring. “This year is completely different than 2014,” he said. “There really shouldn’t be much competition.”
The conference, presented on the cusp of the busy spring planting season, was the 11th annual spring outlook event sponsored by Green Markets. The 90-minute, interactive webinar allowed registrants to listen via computer or telephone, to submit questions in a live Q and A, and to view more than 30 slides and graphs delivered electronically. A recording of the webinar can be ordered by visiting www.FertilizerPricing.com/Forums.