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Mike Howell (00:08):
The Dirt, with me, Mike Howell, an eKonomics podcast where I present the down and dirty agronomic science to help grow crops and bottom lines. Inspired by ekonomics.com, farming’s go-to informational resource. I’m here to break down the latest crop nutrition research, news and issues, helping farmers make better business decisions through actionable insights. Let’s dig in. Well, hello again, everyone. Welcome back to The Dirt. I don’t have to tell all you listeners out there that it is harvest season in North America. Everywhere I go, I see harvest implements in the field, trying to get this crop in and get it in before the winter comes.
(00:51):
Now, we talked about the weather forecast last week on our episode, but the next thing that’s on everybody’s mind this year is, what about prices? And that’s everything from fertilizer prices, input costs, and what we’re going to be able to get for these crops when we get them out of the field and get them to market. To help us do that, I’ve got Mark Tully with us today. Mark, you’ve been on the program several times, but if you will, remind our listeners who you are and what you do.
Mark Tully (01:14):
Hey. Thanks, Mike. I’m Mark Tully here. I work at Nutrien as our manager of global market research. So, cover all things agriculture and fertilizer, commodity prices, macro-economics, supply and demand. Happy to be here this morning. And hopefully I can shed a little bit of information on those prices.
Mike Howell (01:33):
Okay, Mark, we’ll jump right into it and get started. For the last year or so, everything that we seem to be hearing is talking about high prices. Last growing season, we had record high prices for all the crop inputs, including fertilizer, but it seems like those are coming down a little bit. Where are we today in terms of price for nitrogen, phosphorus, potassium, compared to our 10-year average?
Mark Tully (01:54):
Great question. To your point, potash prices, nitrogen prices, phosphate prices, they’ve all fallen quite a bit versus 2022. So, I grabbed some quick stats this morning that I’ll throw out to the listeners. Potash prices year to date are down about 40% year over year, but they’re still up about 17% versus their 10-year average. Urea-ammonia, UAN prices, they’re down about 40 to 50% year over year, but they’re up about five to 10% versus their 10-year averages. And then phosphate prices, this is the one that’s still pretty sticky, they’re only down about 30% versus the prior year, but they’re still up about 30% versus their 10-year averages.
Mike Howell (02:40):
What’s the reason for the prices staying higher than everything else? What’s playing into that?
Mark Tully (02:45):
For the phosphate prices staying higher than everything else, it’s a couple of things. Firstly, it’s global supply outages. So, right now, in the near term, we’ve seen both China and Russia really pulling back from their availability. China has had export restrictions on their phosphate exports for the better part of two years now, which has limited the exports that they’ve put out into the marketplace. Although, the expectation was they’d improve a little bit in 2023, and I think we’ve seen that. But particularly right now in this Q3 period, they’ve pulled back and there’s less product moving out into the marketplace.
(03:22):
China’s in their fall application window, similar to what we would experience in North America. So, demand has started to pick up in country. And with that increased demand in China, they’ve seen increased prices. And so, there’s an opportunity for those producers in China to direct their product to the Chinese marketplace, rather than sending it out to the broader global fertilizer marketplace. The Russian phosphate producers are reportedly just sold out at this period of time and will likely be back as we get into that Q4 period in 2023. And then on the flip side, when we start to talk about the demand, we’re in a period where demand’s been pretty strong.
(03:58):
We’ve had the Brazilians preparing for their next planting season. India has been quite active in phosphate markets. I’ve mentioned what’s going on in China. But in North America, we finished the spring season pretty much empty. There wasn’t a lot of phosphate available in the channel. And as a result, as we’re getting ready for our fall application window, demand’s been pretty strong and we’ve seen a run in prices as a result. One thing to keep in mind, particularly for the US marketplace, is we still have countervailing duties which increase the price of some offshore imports into the US, particularly from Russian and Moroccan producers. And as a result, over the last couple of years since those CVDs have been in place, we have seen some higher prices in the marketplace for phosphates and a little bit tighter supplies as those imports have declined.
Mike Howell (04:44):
Mark, what are some factors that growers should pay attention to coming up, things that may make this price swing one way or the other on these fertilizer prices?
Mark Tully (04:52):
Great question, Mike. And I think the first thing I’d want to touch on for growers is I don’t think we’re out of this period of volatility. I think we’re going to continue to see some higher than average levels of volatility as we go into this next fertilizer year. I think of the anecdote of the roller coaster being the extreme volatility where you’re going up and down on that roller coaster. And then for those of us in ag, the dirt road maybe being that more stable environment. There’s still some bumps, but you’re not out of the woods. There’s always a little bit of volatility. I think we’re probably somewhere in between that right now with the marketplace, where we’re probably not seeing the absolute highs and lows of a 2022 experience, but we’re not quite fundamentally back to this driving down the dirt road. It’s just a little bump here and a little down there.
(05:39):
So, that’s one thing I think we got to keep in mind when we’re getting prepared and looking at the inputs we need to procure for the far. But in terms of some of the big indicators I’d be watching in the marketplace and the things that I do watch, firstly, it’s the change in supply. And when we think about the fertilizer marketplace, there’s a number of supply constraints across nitrogen, phosphate and potash. I’d be watching for information of how those supply constraints might be shifting. For nitrogen, urea, ammonia, nitrates, it’s what’s happening in Europe when it comes to gas pricing and the rate at which plants are operating.
(06:16):
It’s what’s happening in China. Are they continuing to export urea or are they pulling back and increasing their export restrictions? And lastly, it’s the former Soviet Union in Russia. Are we seeing that Russian ammonia being able to enter the marketplace to the Black Sea or other outlets, or is it still challenged from a marketplace perspective? For phosphates, we talked about that just a moment ago, but it’s China. Are they available in the marketplace and are they exporting? And for potash, it’s the former Soviet Union. So, are those sanctions and the war in Ukraine still a major impact? And are we seeing those reduced shipments from Belarus and Russia? That’s what I’d be watching for on the supply side.
(06:57):
As they look at the demand side, the big price drivers I’m going to be watching is how is that seasonal demand looking and what’s the weather like. So, for North America as we’re entering that fall application window, do we have that open fall? Is the crop coming out of the ground quickly? And is the moisture there for growers to go out and put the fertilizer down? And so, if we’re seeing those good signals, I’d expect strong demand. And as a result of that, maybe some upside in prices. On the flip side, where else in the world might we be seeing demand? This time of the year, we’ve got the Brazilians who are getting ready to plant their next crop. And as a result, for the past couple of months, there’s been some pretty strong demand from that part of the world to procure fertilizer.
(07:41):
Watching those seasons through the year and assessing has there been really strong demand or not from those parts of the world. And if there has been, again, we’re probably going to see some tightness in this marketplace and upside in prices. And on the opposite, if the weather sucks and the demand isn’t there, then there’s going to be some excess supply availability and some reductions in price. So, that’s how we need to think about these fertilizer markets. They’re global traded commodities that are impacted by the demand and supply in all four corners of the globe. That’s what we need to be watching, what we need to think about. But in the very near term, I think that the key thing I’d be watching for is, what window do we have this season in North America that’s going to be the draw on fertilizer for North America? And are we going to need a lot more maybe coming into the country or is there going to be a lot put down? I think that’s going to drive pricing here over the next couple of months.
Mike Howell (08:38):
Mark, that’s a lot of information to comprehend at one time. Mark, I purposely tried to not mention the war in Ukraine on this episode, but you touched on it there a little bit. And seems like every episode we record, we end up diverting back to that. But just want to remind everyone that is a key source of potash supply for around the world, and that’s always something we have to watch out for. Any change in that war over there could definitely affect some of these prices. And not only that, it could affect some grain prices. That’s a big area for wheat. Mark, let’s talk a little bit about our crop commodity prices. Last year we did have high fertility prices, high input prices, but we had record grain prices to go along with that. I know they’ve came down a little bit, but still looks like everything’s above the 10-year average. What can you tell us about our crop prices?
Mark Tully (09:25):
Yeah. To your point, Mike, we’ve definitely seen crop prices decline relative to the prior year. More supplies fixes high prices. And so, another growing season, another crop, that tends to reduce some of the pressure that we do see in pricing. But to your earlier point too, they still are well above the 10-year average, particularly the oil seed complex where some of those crops are 20 to 50% above the 10-year average still. And really providing the growers that are able to harvest and sell that crop into the marketplace, a pretty healthy return on that crop. But ultimately, when we look around the crop commodity space and the prices that we’re seeing, we continue to see global supply constraints on crop production. And when we look at yields over the globe over the last two or three growing seasons, most key regions have underperformed relative to trend yield levels. And so, that’s resulted in tightness.
(10:19):
I was looking at some stats the other day, and globally, per capita consumption of key grains in oil seeds has outpaced per capita production of those same grains and oil seeds for several growing seasons. And that’s going to lead to a drawdown in stocks and tightness in supply. Fundamentally, that’s the driver as to why we’re seeing those higher crop prices. It’s that the supply side is just tighter relative to the consumption of those crops. And I know we didn’t want to open that door so early in the morning when we’re recording this podcast, but yes, we still have the war in the former Soviet Union and the war in Ukraine, and that is impacting supplies. Ukrainian grain exports are expected to be down 30% versus pre-war levels this year. The crop’s a little bit better than expected and production’s a little bit better, so there’s probably a little bit more availability than what was anticipated at the start of the growing season out of that part of the world.
(11:13):
But at the same point in time, it’s still down materially relative to history. So, that continues to be a supportive factor in these markets, but we’ve seen some pressure, especially in North America as we’re entering that harvest period. We’re seeing that crop come out of the ground and going into the marketplace. And as that supply becomes available, there’s always that expectation that prices are going to be pressured. At the same point in time, we’ve got the Brazilians and the South Americans that are getting ready to put in their next crop. We’re living off the news of how big that crop could be, and that’s going to add some pressure to the market in the near term. There’s a few of those factors that are going to also be driving down prices from maybe the peaks we were seeing over the last year in the near term.
(11:58):
The big news I’ll be continuing to watch here over the next couple of months is, how’s that North American harvest going? What are yields actually looking like? And do we get a beat or do we get a miss on production? One of those provides upside to pricing. One of those provides probably some downside to pricing. And then as we look into the Southern Hemisphere, how much crop is actually going into the ground in Brazil and at what pace? And what’s their weather start to look like for the yield potential of that crop? And so, I think it’s definitely a story of the Americas as we get into Q4. What’s the crop look like in North America? What could the crop look like in South America?
Mike Howell (12:39):
Well, mark, I don’t follow these markets nearly as close as you do. I’ll look at them a couple of times a week maybe, but I can follow the logic behind most of these grain crops and see where they are. The one that really baffles me is wheat. We’ve been talking about a shortage of wheat, especially with the situation in Ukraine. And can they make a crop and can they get that crop to market? We know that’s a big centre of wheat production. But it looks like wheat prices are still a little lower than I would expect them to be. Am I missing something here? Is somebody else making up the difference in wheat or what’s going on with the wheat market?
Mark Tully (13:11):
I don’t know that you’re necessarily missing anything, Mike. I think this is perhaps one market that’s a little bit confusing to say the least. As we look at those wheat prices, I think you’re bang on. They’re only a couple points higher than their 10-year average today, and I think to your point, a little bit surprising. We haven’t necessarily seen these gigantic wheat crops all over the globe to support fundamentally that weakness in price. Now, certainly, when we think of some big corn crops in South America and in potentially North America this year, that’s going to pressure the entire grain complex and impact wheat a little bit. But overall, I think you’re right, the decline in wheat is maybe a little bit harder than most would expect, recognising the supply constraints that exist around the globe today.
(13:58):
I mentioned that Ukraine’s grain trade is going to be down 30% versus pre-war levels. We do see Russian availability for wheat, but they have actually put in a price floor. They’re not going to sell wheat below a certain level into the export marketplace. And in fact, that’s actually opened up the door for some European Union exports to be able to enter the marketplace, but a little bit more aggressively in the near term. And I think that’s probably put some pressure on wheat prices in the near term. But on the flip side, there’s stories about a pretty weak Indian crop this year and perhaps the need for India to import wheat, versus just a year ago they were talking about being an exporter of wheat.
(14:38):
As we look to the winter wheat here in North America, the conditions don’t look all that favourable at the moment, and there’s some risk there with that crop. To your point, from a global perspective, wheat supplies look like they should be relatively tight or tighter than normal, and we’re not necessarily seeing that premium in wheat prices. What I think about the medium term, one thought I have when it comes to wheat is, historically, over the last decade or so, a lot of the growth in wheat supplies has really come from those former Soviet Union producers, so Russia, Ukraine. And as we look forward here, because of the ongoing conflict, it’s harder to believe that there’s going to be big growth out of that region of the world or at least much slower growth out of that region of the world.
(15:23):
It’s going to, I think, flip back to the days of old where some of these big producers from Europe and North America will need to be able to fill that wheat gap. And over the last 10 or 20 years, we’ve actually seen those crops decline in size pretty notably as the crop makes shifts, and production practises change, and things like that. As I think to the medium term, it’ll be interesting to watch wheat in particular, because fundamentally there’s the potential for that crop to be tight as we look out into the future. It’s a bit of a conundrum, I think at the moment, but an interesting one nonetheless.
Mike Howell (16:00):
Mark, one thing you mentioned a few minutes ago that you were watching is the crop yields here in North America. We know harvest is getting cranked up, it’s in full swing now, but a few weeks ago, Pro Farmer went around and did their annual crop tour. Are you familiar with that? And can you share any insight on what they found as far as what these crop yields are going to look like this year?
Mark Tully (16:19):
Yeah, for sure. Definitely familiar, because it is something that can impact the markets and as something I have to keep my eyes peeled on at all times. The Pro Farmer Crop Tours happen usually second or third week of August. And so, they get into the field and they do some estimates of what the corn and soybean crops in the US can look like. And they came in with a projection of corn yield at about 172 bushels of acre. And for soybeans, they estimated, I believe it was about 49.7 bushels an acre. And that’s well below what the USDA had most recently projected. So, the USDA was at 175 for corn and about 51 for soybeans. The market didn’t react very much to I think the corn yield. I think a lot of private estimates were already thinking that 175 might be too high. And so, I think the market had maybe baked in a little bit of that low 170 number for corn yield.
(17:15):
But I think the soybean was a bit of a surprise. That’s a lower number than most we’re expecting. And then that was followed up by some really hot and dry weeks in the US after that Pro Farmer Crop Tour. So, the potential for that soybean yield to maybe have a bunch of upside was maybe threatened by that weather. Overall, I think those yield estimates are bullish for price, relative to where we started the season from an expectation perspective. But I do think that at this point during the second week of September when we’re recording this podcast, the market probably has priced in a lot of that yield to date. As we get into harvest, though, we’ll be watching that really closely.
(17:56):
What are these ultimate yield numbers going to be and are they going to be aligned with those Pro Farmer yield estimates? Are they going to be higher? Are they going to be lower? I think that’s something we’re going to have to watch really closely, and it’s going to be a big price driver here over the next couple of months. The other thing I’d keep my eyes peeled on as well is, what are those final harvested acreage numbers? I think in seasons like this where we tend to have been dealing with drought and maybe we see well below tread yield numbers, there’s a potential that there’s some acreage that doesn’t get harvested for grain. We may actually see a bit less production as a result of that too, that we would provide some upside to pricing. Those are a couple of things I’d be keeping my eyes peeled on from a yield production perspective.
Mike Howell (18:38):
Yeah. And that’s a very important point, Mark. I know down in my world we’re in a really bad drought. And I’m hearing some talk already about some growers that are actually cutting soybeans for hay. There’s just not enough grain there to justify putting a combine in the field. I’ve been in some cotton fields that are going to yield between 100 and 200 pounds per acre, and that’s just really low yields. They just burn up this year and didn’t get enough moisture to mature that crop out. But Mark, another thing that you mentioned that you keep an eye on is Brazil and their planting window, their crop down there. Last week we had Eric Snodgrass on and he told us that the Brazilian crop was actually going to get started planting a couple of weeks early this year. Is that going to lead to a bigger crop or what’s their acreage forecast look like?
Mark Tully (19:23):
I think we’re going to continue to see expansion in soybean acreage in Brazil this year. Our expectation is that it’s going to be up maybe three to 4% year over year. So, that’s a pretty sizable increase. The soybean prices have been quite strong and the affordability of inputs has been quite good for the Brazilian grower as a result. And by all accounts, our intelligent suggests that sentiment’s pretty high, and the growers want to get out there and put as many soybeans into the ground as they can. We had probably previously been a little bit lower than that number when we think back maybe two or three months ago. The conditions, like I say, are getting better. And as a result, maybe some higher acreage. To Eric’s point, there is a time when you’re allowed to start planting soybeans in Brazil. And so, for the key State of Mato Grosso, which is right in the middle of Brazil, that’s around September 15th, is when you can start to put your crop in.
(20:13):
This year, they were actually letting growers get into the field a little bit earlier, and start planting a little bit earlier. Growers want to take advantage of the conditions that exist today and get that crop in as early as possible. There’s some that are a little bit upset about that, because in Latin America and Brazil in particular, soybean rust has been an issue historically. And so, folks are a little bit concerned that, A, if we get the crop in too early, maybe we’ll have some additional rush pressure. But TBD on that one, we’ll have to wait and see if that actually is a concern or if it’s perhaps just chatter amongst folks.
(20:46):
But certainly, I think all signs for the soybean crop point to the potential for a lot more acreage and a pretty big crop coming out of Brazil. The one thing I’ll caveat those comments with, and I’m sure Eric will have talked about it last week, is as we flip the weather pattern from a La Niña to an El Niño, there can be some dryness risk and some heat risk in Latin America. And Brazil, famously double crops, so they do their soybeans and followed up by corn. I would say that the conditions, and the expectations, and the sentiment for that second crop of corn that would be planted in the Q1 period of 2024 are a lot worse. They’re really bullish on their soybeans, but they’re not very excited about their corn.
(21:30):
Corn prices in Brazil are incredibly weak because of a year of record production and an inability to get all that crop to export markets. And so, there’s a lot of domestic pressure on corn prices. And at the same point in time, there’s some additional weather risks that comes with that El Niño weather pattern. And so, we haven’t quite seen maybe that excitement around corn acreage quite yet for Brazil. So, that’s something I’ll be watching closely here as the calendar progresses.
Mike Howell (21:58):
Well, Mark, we appreciate you being on today. I know you’ve definitely given our listeners a lot to think about and some insight onto these markets. Do you have any closing comments, anything you want to make sure we get out here before we close today?
Mark Tully (22:10):
I think you’re right, Mike, we touched on a lot here from the marketplace. And so, I don’t want to inundate your listeners with any more price talk or percentages up or percentages down. But to your point earlier, folks are getting out into the field at harvest time and are busy, busy, busy. So, hoping folks out there have a successful harvest and a safe harvest.
Mike Howell (22:29):
All right, Mark, well, we sure appreciate it. Listeners, it’s now time that we move into our second segment where we talk about somebody famous in agriculture. We spent a lot of time this week talking about harvest season and how harvest is upon us. And the man that I’ve chosen to talk about today is instrumental in the harvest of cotton. Back in the 1800s and even into the early 1900s, all the cotton produced in the United States was hand harvested. This was done by slaves, and then migrant workers came in to help with the cotton harvest, until a man named John Rust invented a cotton picker. Now, the first spindle cotton picker was developed in the late 1930s. It was called the Rust Cotton Picker, and it threatened to wipe out the old plantation system and throw millions of people out of work creating a social revolution.
(23:18):
Now, John Rust was born in September 6th, 1892, near Necessity, Texas. As a youngster, rust did a lot of farm work and displayed an aptitude for mechanical tinkering. John’s parents died when he was only 16 years old, and he started drifting around in Texas, Oklahoma, and Kansas. Rust was intrigued with the challenge of building a mechanical cotton picker. Some other inventors had used spindles that had barbs on it that would twist the fibres onto the spindle and pull the cotton lock out of the bowl, but the spindle quickly became clogged with the cotton. Rust concerned himself with how to strip the cotton from the barbs. The answer to which he decided was to use a smooth spindle with some moisture to help clean those spindles off.
(23:59):
Rust was quoted as saying, “The thought came to me one night after I’d gone to bed. I remembered how the cotton would stick to my fingers when I was a boy picking cotton early in the morning with the dew.” He later said he jumped out of bed and found some absorbent cotton and a nail. He licked the nail to get it moist and twisted it in the cotton and found that it worked. Rust went back to Texas to live with his sister in Weatherford and he assembled the first working model of a cotton picker in her garage. He tested this invention on 10 artificial stalks that he had set up on a board, and the machine successfully picked 97% of the locks on those artificial cotton plants.
(24:37):
He continued his testing with funds from friends and family. And in 1928, his brother, Mack, who had a degree in mechanical engineering from the University of Texas, joined him to help perfect his invention. In 1933, he received his first patent, and eventually he and his brother owned 47 patents. Now, this happened to be about the time of the Great Depression, and finding financial support for his invention proved very difficult. Finally, in 1935, he was still in pursuit of financial backers, and Rust and his brother relocated to Memphis, Tennessee, which was the centre of the Cotton South.
(25:12):
They founded the Rust Cotton Picker Company. And on August 31st, 1936, the Rust Picker was demonstrated at the Delta Experiment Station in Stoneville, Mississippi. The cotton picker actually picked the cotton, but it was noted that a lot of the cotton was left on the ground. And it also had bits of leaves and stems, which lowered the grade, thus lowering the price. But it did pick the cotton and Rust pledged to have 500 machines ready for the next growing season. Unfortunately, the Rust Cotton Picker Company lacked the financial backing and did not have the commercial resources to make a production model. The Rust brothers could build a few prototypes, but the production of thousands of machines required resources of a large company. Rust also had some concerns about the durability of his machine and wasn’t sure that it would stand up to the durability needed in a commercial product.
(26:04):
The brothers’ partnership dissolved and Mack moved back to Arizona. As the Rust Company slipped into bankruptcy, International Harvester Corporation announced in 1942 that it had produced a production ready model of a mechanical cotton picker. International Harvester had spent $5.2 million over two decades to develop a spindle type picker. Now, unlike Rust’s model, this used a barb spindle, which improved the affinity for the cotton fibres. However, this was about the time of World War II and steel was scarce at that time, so it didn’t begin production until 1947 when they opened a new manufacturing plant in Memphis and became the first company to produce a commercially mechanical cotton picker.
(26:46):
After World War II, the use of the mechanical picker slowly increased across the Cotton South. And the great migration of World War II and the post-war period, shifted millions of people from farms to the cities, and this prevented the social disaster that many were concerned about with a mechanical cotton picker. Rust was faced with bankruptcy, but the only thing he had left was his drafting board. And in 1943, he set out to redesign his spindle device and tried to make it more durable. His efforts finally paid off with two more contracts. After the war, Allis-Chalmers Manufacturing Company began manufacturing cotton pickers in Gadsden, Alabama using Rust’s patents. And in 1949, Rust entered into another agreement with Ben Pearson Company of Pine Bluff, Arkansas.
(27:33):
This was a company that was known for making archery equipment. But Rust moved to Pine Bluff to act as an engineering consultant, and they went on to market Rust Pickers internationally. Now, the Rust Cotton Picker achieved commercial success. And Rust, after many years of hardship, became a wealthy man. He repaid all of his sponsors and established scholarships at colleges in Arkansas and Mississippi. Rust died on January the 20th, 1954, just as the use of mechanical cotton pickers moved into the south into the revolutionary new era of agribusiness. So, we want to remember Mr. Rust today and thank him for his contributions to the cotton industry. Listeners, if you want to find out any more information on any of today’s topics, you can always go to nutrien-ekonomics, with a K, dot com. Until next time, this has been Mike Howell with The Dirt.
