Crop and Fertilizer Outlook: A Bullish Narrative
Global agriculture market insights
Despite the ongoing conflict in Ukraine, adverse global weather events and dwindling stocks of crops and fertilizers, there are opportunities for growers. Mark Tully, Nutrien Global Market Research Manager, and Sudeepta (Su) Mohapatra, Market Research Senior Analyst, joined Mike Howell, agronomist and host of eKonomics “The Dirt PodKast” for an American Society of Agronomy (ASA) market update webinar.
Agriculture market fundamentals
The first message of Su Mohapatra’s presentation was the tight supply of grain stocks on the global market. “Grain stocks have declined for six consecutive years and the Global Grain Stocks/Use ratio is the lowest it has been since the 1996-97 growing season.” The Stocks/Use ratio shows the balance between supply and demand.
The Global Oilseeds Stock/Use ratio is close to historic lows. Oilseeds are doing better overall than cereals, but tend towards concentrated areas of production, such as Brazil, where soybean production is increasing. Canadian canola production is also increasing but those numbers are offset by reduced production due to drought in 2021 and 2022.
[bolded pull quote] Supply challenges in key crop growing regions have supported strong futures prices and provide an incentive for growers to boost production in 2023. Drought in the United States has decreased corn yields, to the lowest in three years. Soybeans have also been affected, seeing reduced acres and yields.
“South American crop production and weather news will be a major market driver in the near term as a large corn and soybean crop in Brazil is expected to fill the gaps in global commodity availability left by a below average U.S. crop,” said Mohapatra.
Brazil’s historically high soybean and corn prices and rising demand are expected to support increased acreage in 2023 and beyond. “Soybean futures are steady, supported by demand expectations, with China expected to increase purchases in the coming months.”
Global crop economics
Mohapatra sees crop prices remaining elevated, supporting historically higher grower margins, and strong expected demand for crop inputs. From a grower’s perspective, farm credit conditions remain relatively strong. While input costs remain high, they are coming down from 2022.
“With global supply challenges in the rest of the world, the focus on North American planting and crop development will be even more intensive given the heightened sensitivity to global food security,” said Mohapatra. “Brazil is being looked upon as the global breadbasket, with expectations that it can make up the short falls in the rest of the world.
“Overall, long-term futures and the agricultural fundamentals are still telling a bullish story. That said, growers are going into a time when the South American crop size might define the story going forward and as is always the case, much more uncertainty exists into the future.”
Fertilizer market fundamentals
Mark Tully says 2022 was a wild ride when it came to fertilizer prices. “As of Spring 2022 we saw N, P, K prices not seen for the better part of a decade. And we are seeing a return to more average ratios for the fertilizer prices relative to the commodity crop prices.”
According to Tully the key fertilizer market drivers are:
- Reduced potash shipments from Belarus and Russia between 2021 and 2022; expecting further reductions in 2023
- Good ag fundamentals should increase potash use in 2023 and pent up demand likely to emerge as inventories are drawn down and prices stabilize
- Historically high European natural gas prices led to the curtailments of ammonia and downstream nitrogen production in 2022
- However, decreasing natural gas prices in early 2023 due to a milder winter will likely lead to an increase in production near term
- Shifts in global nitrogen trade flows led to higher US exports, reduced import volumes
- Chinese limited exports in 2022; likely to do so again in 2023
- Lower Chinese operating rates have contributed to relatively tight phosphorus supplies
Record high natural gas prices in Europe due to sanctions have contributed to plant shut downs and reduced operating rates in 2022, impacting supply and associated prices for all nitrogen products.
“Reduced Russian ammonia exports through the Black Sea and restricted Chinese urea exports have been key contributors to nitrogen market tightness and are expected to continue into 2023,” said Tully.
Final thoughts
The look ahead is primarily a bullish narrative. Growers will continue to experience really tight supply. The grain sector could see historically high prices for a number of crop commodities. The global picture still has major challenges including the unrest in Ukraine, and drought in South America. There is a strong need for rebounded acres in 2023 but the low stocks globally will not be replenished in one year.
To access the full webinar, log into your American Society of Agronomists account and visit the Learning Center.
