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[00:00:00] Mike Howell: 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 use, and issues helping farmers make better business decisions through actionable insights. Let’s dig in.
[00:00:39] Mike Howell: Well, hello again everyone. Welcome back to the Dirt. Glad you’re tuning in this week and we’ve got a familiar face in the studio with us today. We have Mark Tully back with us. Mark, welcome back to the Dirt. If you will introduce yourself to our listeners that may not have heard you before.
[00:00:53] Mark Tully: Yeah, thanks Mike. Glad to be back. I’m Mark Tully with our global market Research team here at nutrient. My role with the organization is to cover all things commodity markets and macroeconomics with a keen focus on those fertilizer markets and. There’s been a lot of change since we last chatted, and looking forward to having a conversation again.
[00:01:11] Mike Howell: Mark. As you mentioned, we had you on on June the 10th. If people missed that episode, you can go back and look at that. And before we get too deep into this, I’m just going to put out some timelines here for everybody just so they know where we are. We are recording this on the morning of June the 25th.
[00:01:27] Mike Howell: This podcast is gonna be set to go live the morning of July the first. I usually don’t tell people that when we get started, but things are changing so fast and this topic is so volatile. I don’t know if this will be even relevant by the time it goes live. I thought it was important to get this information out there.
[00:01:44] Mike Howell: Mark, I’m gonna take just a second and kind of set this episode up and while we decided to do this. Back on June the 13th, Israel attacked Iran. That’s been in all the news. Everybody has heard about that. Iran returned those missile attacks and that started what’s being called the 12 day War. Fast forward a little bit to June the 22nd.
[00:02:04] Mike Howell: That was Sunday night. The US entered this conflict or war, however you want to look at it, but the US struck some of the Iranian nuclear sites. We got up on the morning of June the 23rd, and Iran had vowed that they were gonna retaliate against those US attacks, and they threatened to close the straight of horror moves.
[00:02:22] Mike Howell: When I heard that, I knew that we had a lot of focus in that area with the fertilizer industry, and I reached out to Mark to see if we could get a podcast set up to talk about the importance of this, how this potential closing of the strait of Hormuz was gonna affect the fertilizer industry. We put together a lot of information and talked all during the day on the
[00:02:41] Mike Howell: afternoon of June the 23rd, and about the time we got ready to call it a day that day, uh, we heard about the ceasefire announcement. We decided we may have done all of this work for nothing. And then we got up the morning of the 24th. Both sides had violated the terms of the ceasefire, and it was back on by yesterday afternoon, the ceasefire was back in play.
[00:03:00] Mike Howell: I guess the question today is, is that ceasefire gonna last and what happens if it doesn’t last? So Mark, that’s kind of a quick rundown of what led up to us having you back on. We know a lot about the Middle East region over there. I’m sure all of our listeners are familiar with the Gulf War and the fighting that’s been going on for years in that region, and they know about the oil.
[00:03:19] Mike Howell: So let’s start there with the oil and natural gas. What’s going on with those markets since the war got started back on June the 13th?
[00:03:26] Mark Tully: Well, thanks Mike and I. That was a great overview, and like you say, it’s been an extremely volatile period with a lot going on in energy markets as well as fertilizer markets because of the importance of that region for fertilizer production.
[00:03:39] Mark Tully: But to talk about oil and natural gas that comes out of the region, approximately 20% of LNG or liquified natural gas ships through the strait of who moves primarily that. Product is coming from Qatar and the United Arab Emirates, and so a pretty significant proportion of global energy demand is met by the region from an export perspective and why we saw some volatility in energy markets, about 60% of Egypt’s natural gas imports actually come from Israel, and the war kicked off.
[00:04:09] Mark Tully: Israel closed two of their three. Gas fields. Both of those two fields that were closed were primarily delivering exports to Egypt and Jordan, both of which are key fertilizer producing countries. We saw a whole bunch of supply impacts as a result of that, but also the market really pricing in a a risk premium because of what could happen if that strait of Hormuz.
[00:04:31] Mark Tully: Closes Beyond that, Iran’s also about a 4% share of global exports, accrued oil, and so it’s a big region of the world from an energy perspective. So what did we see in those energy markets? Well, prior to the war starting, Brent crude oil was trading. And about 69 bucks a barrel. It peaked all the way up to 78 bucks a barrel in a matter of a couple of days.
[00:04:54] Mark Tully: But today as we’re recording this podcast, it’s back down to actually $68 or so for that Brent crude natural gas, and I’m measuring this in a US dollar per MMB to U, and looking at. Energy prices in Europe, which is a key import market right now. Natural gas, the day before the war kicked off was trading at about $12 and 30 cents in M-M-B-T-U in Europe jumped all the way up to $13 and 80 cents.
[00:05:20] Mark Tully: And as of recording right now is down to about $12 and 15 cents. So a ton of volatility. But I think what’s important to share with our listeners is a lot of that volatility, like I say, was driven by a risk premium that the market was developing. In the case of what if exports are impacted from a natural gas perspective with the closure of the strait of horror moves?
[00:05:44] Mark Tully: What’s different in fertilizer markets is we actually saw production losses and changes in total supply availability because of this war. I’m sure we’ll talk about that a bit more as we go through your questions, Mike.
[00:05:55] Mike Howell: Yeah, mark. That’s kind of where I wanted to go Next, we know about the importance of natural gas in the production of nitrogen fertilizer.
[00:06:02] Mike Howell: We’ve done several podcasts talking about that, but what we may not have addressed too much is the production of fertilizer in that Middle East region. I know there’s a lot of nitrogen production, but I also understand there’s p and K production coming out of that region as well. If you would talk a little bit about what all is produced in that region and where it’s shipped, and how it gets to the end user from there.
[00:06:23] Mark Tully: Absolutely Mike, so I’ll maybe start by just giving folks a total picture of production in the region, and this is including countries that are not necessarily directly in the conflict today. I’m looking at sort of the bucket of the Middle East with Egypt as well included into this, total about half. Of Global Urea exports comes from the Middle East and Egypt combined.
[00:06:44] Mark Tully: 30% of global ammonia exports about 30% of key phosphate fertilizers. So DAP MAP NPS products. About 10% of global potash exports come from Israel and Jordan, and about 50% of global sulfur exports actually come from the region as well, which is a key input in the production of phosphate fertilizers around the globe.
[00:07:06] Mark Tully: When we think about the totality of the impact, if the strait of hormones was to close and the conflict was to continue for an extended period of time, there’s a lot of fertilizer product that’s coming from this region that’s meeting demand all over the world. One of the key impacts immediately seen from the conflict starting was increased logistical costs.
[00:07:27] Mark Tully: Higher freight rates in the Red Sea and in the Strait of Hormuz ensure these large vessels that are carrying fertilizer products, raising rates because of the risk of these ships facing some kind of distress related to the conflict. And that’s impacting delivered values around the globe. But I wanna highlight the impact it’s had on a couple of key nitrogen producers.
[00:07:50] Mark Tully: Egypt and Iran combined Egypt and Iran account for about 20% of global urea exports each month. Egypt exports about 370,000 tons to the global market, and Iran exports about 480,000 tons. And so even with this 12 day war. With both of those countries turning off production because of the lack of natural gas availability when the war kicked off here, we’ve lost in this not quite two weeks, somewhere between 400 and 500,000 tons of urea that could be exported to the global market.
[00:08:25] Mark Tully: And as each week goes by with these producers down, you know, we’re losing as much as a 200,000 tons of available urea that could be exported to the global marketplace. So it’s a fairly impactful loss of supply, particularly for regions like Brazil, Turkey, Europe, even parts of India that would traditionally be importing a lot of this volume at this time of year with the ceasefire.
[00:08:50] Mark Tully: We’ve got news just this morning, Mike, that Iran is planning to return their nitrogen facilities to production. And so when this podcast is published next week, we’ll probably have the first couple days of nitrogen plants running again in Iran. The question ultimately will be at what rates and how much is able to come on, and if this ceasefire holds the length of time between, you know, when we’re recording and, and when we actually publish this.
[00:09:16] Mark Tully: The other piece of the puzzle fundamentally is Egypt. This is the key demand season from an energy perspective in Egypt. They’re importing. A lot of energy. About 30% of their energy demand is now met from imports, and about 60% of their liquified natural gas is actually coming from Israel. Israel has started to turn on their natural gas fields again and allow for some exports, but it may take more time for Egypt’s production to normalize.
[00:09:43] Mark Tully: Their urban centers require energy right now to meet. A cooling demand for their urban population. It’s the hottest time of the year at this point. And so those industrial plants, including nitrogen facilities, have been turning off at this time of year, even when there isn’t a crisis and a lack of natural gas supply in the region.
[00:10:03] Mark Tully: And so we’re gonna have to watch closely to see. Whether Egypt’s able to normalize their productivity. I mentioned some of these other products that are impacted, things like ammonia exports from places like Saudi Arabia, the potash production and the phosphate production that’s coming from Jordan and Israel.
[00:10:21] Mark Tully: That fertilizer has not seen the supply constraints that urea has seen, but it’s something we’re watching closely. It certainly has been impacted by the rising freight rates, but we’re not necessarily seeing a negative impact in total supply availability. Urea is the one where we have seen some pretty extreme volatility because of the supply outages as we’re sitting here recording.
[00:10:42] Mark Tully: Over the last couple of days, we’ve seen urea prices rise as much as a hundred dollars per ton relative to where prices were the day before the war started. Mike.
[00:10:51] Mike Howell: Mark, thanks for going through all of that. One thing you were talking about was the production coming out of Egypt, and I got to thinking about the map.
[00:10:58] Mike Howell: Egypt is bordered on two sides by water. It’s got the Mediterranean Sea to the north and the Red Sea to the east. I’m assuming the fertilizer is moving out of both of those bodies of water or what percentage is coming out of each one. Do you have the estimate on that?
[00:11:12] Mark Tully: So Egypt’s exporting about four and a half to 5 million tons of urea per year.
[00:11:17] Mark Tully: A lot of it’s going through the Red Sea Mike as it’s looking to ship product to some of those, we’ll call it east of Suez markets in Asia, as well as markets in Latin America like Brazil. But they’re actually a big importer into Europe and Turkey in particular. So that product would be throwing through that Mediterranean Sea moving north into that European market.
[00:11:39] Mark Tully: Both markets, frankly, would be impacted by Egypt, essentially just turning off production in full. But it’s the Red Sea market in particular that’s actually also seeing that premium freight rate developing. And so they’re delivered values to those markets that I mentioned in sort of the Southern Hemisphere and Eastern Hemisphere.
[00:11:57] Mark Tully: They’re gonna see some impact to just cost to serve as well.
[00:12:00] Mike Howell: Mark, we mentioned the importance of the eKonomics and one thing that I was seeing on the news, there were some ships that were avoiding that area earlier in the week, sailing on a different route or changing their route altogether.
[00:12:11] Mike Howell: Do we have any idea of any fertilizer vessels that may have been impacted coming through that earlier in the week?
[00:12:17] Mark Tully: Well certainly impacted because of the cost of production and the cost of freight rates. Mike, in terms of markets explicitly avoiding the eKonomics haven’t seen a lot of news on that beyond just the sheer loss in Iranian production, all of which would be a.
[00:12:35] Mark Tully: Traveling through that strait of Hormuz. In fact, the Iranian producers were actually flaring off their ammonia inventory, so literally burning them as a safety precaution because of the missiles that were hitting Iran through this war. And the risk of it was to hit a ammonia tank or something like that.
[00:12:53] Mark Tully: The potential added risk and loss would’ve been pretty dramatic. But I think just to give our listeners a little bit of a concept of how important this strait of Hormuz is to overall. Energy and fertilizer commodities. I’ll hit on a couple of this. So keeping in mind, this strait of Hormuz is used by Saudi Arabia, Qatar, United Emirates, Iran.
[00:13:13] Mark Tully: It’s a, a major pathway for some key producers. About 20% of global liquified natural gas is moving through that strait of Horus. Both 20% of global crude oil is heading through that. Somewhere around 30% of global urea. Travel through there, somewhere between 25 to 30% of global ammonia exports, somewhere around 40% of global sulfur exports would be leveraging that straight and so very significant impact to global energy and global fertilizer markets.
[00:13:39] Mark Tully: If this war was to pick up again, and we do see that straight close, Mike. Mark, we’ve
[00:13:44] Mike Howell: covered a lot and talked a lot about the importance of that region. We certainly hope that nothing else is gonna happen over there. I hope the ceasefire is gonna last for a while this time, but we wanted to get this information out and let people know what the importance was of that area.
[00:13:58] Mike Howell: Let ’em get a feel for that and make plans accordingly. To that. Mark, we’ve covered a lot of information. Is there any other information that you think we need to get out there while we have you today?
[00:14:07] Mark Tully: I think it’s important, Mike, that we share with our listeners some of the immediate impacts that have happened because of the loss of supply on the demand side.
[00:14:15] Mark Tully: It’s not just that we lost production, there were some key importers that were impacted as well. And the one key storyline I’d wanna highlight is India. So the day before the warp kicked off, India was in the process of closing a massive import tender of about 1.5 million tons of urea. Because of the war and the loss of supply and uncertainty and availability, India was only able to procure about 300,000 tons of product outta that 1.5
that they were looking for.
[00:14:42] Mark Tully: And they’ve actually come back to market just this week asking for a new tender to the market of 2 million tons and looking for delivery by the middle of August. And so it’s a pretty significant volume that India’s in the market for today. And like I mentioned, we’ve lost about half a million tons of.
[00:15:00] Mark Tully: Prompt supply availability in this June July period because of the production outages so far from Iran and Egypt. And so this is a key storyline that I think will continue in the urea markets for a little bit longer than maybe just the ceasefire because of some of these key markets that are looking to import.
[00:15:18] Mark Tully: I’d say the other thing that’s important to mention on the demand side, and we talked about in our last conversation, Mike, was we are a weaker crop price environment is this North American crop is in the midst of development and we’re certainly hearing from some of the southern hemisphere buyers with this surge in nitrogen prices recently.
[00:15:35] Mark Tully: There’s some additional caution. Buyers waiting to see what’s gonna happen with prices before they’re stepping in. Certainly examples in Brazil of buyers holding off on some of their nitrogen decisions at the moment. And so as we get clarity with this situation and supply returns, I think there is gonna be some pent up demand in the market to fill some storage and pick up some inventories ahead of some key seasons in the Southern and eastern hemispheres here around the globe from an application perspective, and that can certainly impact.
[00:16:05] Mark Tully: Because some of these summertime availability and pricing, particularly in the urea complex, even beyond when this war ends.
[00:16:13] Mike Howell: Mark. As always, we appreciate you taking time to do this. I know we did it on a short turnaround this week. You worked above and beyond to get it out there. For our listeners, listeners, we hope you enjoyed this.
[00:16:23] Mike Howell: I hope you got something out of it, and if you’ll hang around for just a couple of minutes, we’ll be right back with segment two. Farming isn’t farming without questions, and now there’s a place to go for answers. At eKonomics, an entire team of agronomists is waiting and ready to help for free. No question is too big or too small.
[00:16:42] Mike Howell: Visit Nutrien-eKonomics.com at submit your question with the ask an agronomist feature.
[00:16:52] Mike Howell: Listeners, welcome back for Segment two of the Dirt. As you know by now, segment two is where we asked one of our agronomists an agronomy question of the week. Today we have Dr. Karl Wyant back with us. Karl, welcome back to the Dirt.
[00:17:00] Dr. Karl Wyant: All right. Thank you for having me.
[00:17:04] Mike Howell: Karl, today’s question has to do with a theorem in agronomy that one of the first things I learned when I started going to school, learning about crops and soils, and it’s dealing with Liebig’s law.
[00:17:14] Mike Howell: Tell us a little bit about Liebig’s Law at the minimum, and how this law helps growers better understand their nutrient
[00:17:20] Dr. Karl Wyant: management plan. Sure. Yeah. I think this is the first thing I learned as well is this idea where, let’s just pretend we’ve got a barrel and we’re trying to fill it full of water. The height of that water in the barrel is your yield.
[00:17:32] Dr. Karl Wyant: If you have some sort of nutrient that’s low in supply in your soil here, we can represent it as the stave on that barrel. However high that stave goes in the barrel, it really represents. The top how high you can get the water in the barrel. So if you’ve got like a real low stave, you’re gonna leak water, you’re not gonna be able to fill the barrel up.
[00:17:51] Dr. Karl Wyant: Now you’ve really satisfied the sort of law, the minimum, saying that whatever’s in least supply in this reaction that we call farming. Every year we have sunlight, we have nutrients, we have water and soil, so we have these like different ingredients. Whatever’s in leaf supply. That’s what’s going to limit your yields ultimately.
[00:18:08] Mike Howell: Karl, I know there’s a little bit of debate about how relevant Lie Big’s law is these days, and one thing I’ve always questioned about lie big’s law it it only pertained to nutrients and it didn’t put in other things like sunlight could be a limiting factor, water could be a limiting factor. There’s so many other limiting factors, but I.
[00:18:24] Mike Howell: I do think this is a critical thing that people need to be aware of, but I don’t think that it quite addresses everything that could be going
[00:18:30] Dr. Karl Wyant: on in the field. Sure. Yeah. When you think about it, let’s just focus on crop nutrition. When we have, uh, let’s just say for example, very low potassium values in the soil, that potassium is going to limit.
[00:18:41] Dr. Karl Wyant: Your yield. So naturally you might wanna focus your input dollar on potassium. Try to raise that soil level up that supply level, raise the height of the stave in the barrel to go back to that earlier example and make sure that that potassium is not limiting your yield. Now, what I’m not saying is cut everything else out at the expense of potassium, just focus only on potassium.
[00:19:03] Dr. Karl Wyant: I think that’s where there’s been some misinterpretation of this idea over the years. Really, we’re looking for your total program and you’re making those tweaks every year to really find what do I need to pay just a little bit more attention to without shorting the nitrogen, without shorting the phosphorus or the micronutrients because it is a barrel.
[00:19:21] Dr. Karl Wyant: There’s multiple staves in that barrel, multiple nutrients. We’re really just trying to tweak and fine tune and make sure that crop is not going without during the season
[00:19:30] Mike Howell: call. We really appreciate you taking time outta your busy day to visit with us. We really enjoy these segments and hope our listeners are getting as much information out of ’em.
[00:19:37] Mike Howell: As we are listeners, thank you for tuning in today. As always, if you need more information about anything we’ve covered today, you can visit our website. That’s nutrien-ekonomics.com Until next time, this has been Mike Howell with the Dirt. Hey guys, if you like what you heard today, do us a favor and share this podcast with someone else.
[00:19:59] Mike Howell: It could be your neighbor, your friend, your crop advisor, or whoever you think would enjoy it. Your support helps ensure future episodes, so please like, subscribe, share, and rate the show wherever you’re listening from.
