Read Full Transcript
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, use and issues helping farmers make better business decisions through actionable insights. Let’s dig in.
(00:38)
Welcome back to The Dirt. We’re going to change things up a little bit for this episode and get away from our fertilizer series and talking about our macronutrients. And today we’re going to be joined by Chris Reynolds, Vice President of Sales with Nutrien. Chris, good to have you on the show today.
Chris Reynolds (00:53):
Thanks, Mike. Great to be here.
Mike Howell (00:54):
Chris, if you don’t mind, give our listeners a little bit of background about yourself.
Chris Reynolds (00:59):
Yeah, I’d be happy to, Mike. So yeah, as Mike said, Chris Reynolds, senior vice president of sales for Nutrien, and I’ve been with Nutrien now going on 18 years. In fact, my 19th year this year having moved from Sydney, Australia in September of 2003. And so really I’ve had almost 25 years actually in the fertilizer industry starting in Australia and marketing fertilizer products to the Australian market and then having the opportunity to come over to Chicago in 2003.
(01:29)
And I grew up actually around agriculture, even though I was a city boy, my mother’s side of the family were all farmers. My mother grew up on a farm, a mixed sheep and cattle property between Sydney and Melbourne. And so we used to spend a lot of vacations down on the farm helping my grandfather and my uncle. And I suppose that’s where I really, my first love for agriculture and wasn’t really sure what I wanted to do after I left school. So went to study agricultural economics in Northern New South Wales at the University of New England, and then moved to Sydney upon graduating to work for a company in the Australian fertilizer market, as I said, was marketing products to the Australian fertilizer market. And so it just sort of grew from there, Mike. And yeah, we moved to Chicago 2003, wasn’t sure how long that was going to be for, but anyway, here we still are almost 19 years later. So it’s been great.
Mike Howell (02:19):
Okay. Well I’m glad you’re here with us today. In my position, I do a lot of travelling. I visit with a lot of growers, some of our retail partners across the country, and one of the most often asked questions that I’m getting these days is about fertilizer prices. And not just fertilizer, everybody realises that input costs are definitely going up. But if you would kind of walk us through what’s going on with the fertilizer markets over the last couple of years. I know it’s took a while to get where we are today and it’s not going to change overnight, but give us an idea about some of the factors that are influencing this fertilizer market.
Chris Reynolds (02:52):
Like you, a common theme and a common topic amongst all of our customer base and also our customers looking to us to help them with information to explain to their customers. And in a lot of cases, that’s the end user of our products, just how we got to this place today in terms of this market and these fertilizer prices and where they’ve gone and why that’s happening. And as I think about it, we’ve really got to go really all the way back to February 2021. So just over a year ago when I started to think about when we had some supply disruptions and there was a major freeze, if you recall, go through the Texas Gulf Coast. And for our listeners that aren’t familiar, the Texas Gulf Coast has a lot of industrial facilities including some nitrogen plants all the way up to Louisiana, which includes some Nutrien plants as well. And that really impacted the production of some major products in the fertilizer space and just on the cusp of spring back then.
(03:47)
But it was also the same time that we started to see ag commodity prices really started to take off. And really that curve had started to move back in late Q4 of 2020, which is when China re-entered the market and really emerged as a major buyer of ag commodities, not just in North America, but also in South America. And so you started to have this momentum come at this market on two fronts to demand portion for our ag commodities, which then drove those ag commodity prices. And then you also had a tightening of fertilizer supply because of some production disruption.
(04:22)
You also had Hurricane Ida hit New Orleans back in September 2021 so that knocks some production out as well. And when these plants go through a hard shutdown like they did in February and again in September, it really takes some time to get them restarted and it can expose some issues in some of these plants when they go through that extreme shutdown. And we found out with some of our plants as well. So you had really a perfect storm between some production restrictions and some very, very strong demand for fertilizer because the ag commodity markets were signaling to growers, we need you to maximize yields. And so growers were responding to that signal and demanding not just fertilizer products but really all ag input products all throughout the calendar year of 2021.
(05:08)
So that’s sort of how we’ve got to where we are today. And then of course this year, the very unfortunate events that we see going on right now in the Ukraine. And so this has really impacted agricultural production in the Ukraine, but also fertilizer supply from Russia as well. And Russia is a major fertilizer producer and exporter across the nutrient space, NPK. And so that has been a shock to the supply side again, which was on top of a market environment that was already extremely tight and had already seen prices move up. And this has just thrown more fuel on the fire now with the war in the Ukraine.
(05:45)
So Mike, as I’m talking to you, we’ve just seen today corn reach a nine-year-high, other commodities, soybeans, wheat, cotton, again, all signaling to growers around the world that are able, we need you to maximize the acres that you plant this spring. We need you to maximize the yield of these crops because the world is going to need every bushel, every pound that we can produce. So again, that pressure is coming back to ag input providers to help those growers really fill this vital need that the world is looking to them right now.
Mike Howell (06:18):
Yeah. Well Chris, you mentioned a bunch of factors there that are definitely causing supply issues with fertilizer. I don’t know how many people realize it, but the Gulf of Mexico was vital because of the natural gas production in that part of the world, and that’s close to home for me, and we depend on that natural gas to make the nitrogen fertilizer. So what is Nutrien doing to help offset some of these problems? Is there anything Nutrien can do to boost production up and help out on the production side?
Chris Reynolds (06:44):
No, it’s a great question, Mike, and it’s something that we are really taking very seriously right now because really the world is looking to markets like the US, Canada, Brazil, Australia, other markets that have excess agricultural production and then in turn, looking to companies like Nutrien, that can help this situation. And as the world’s largest fertilizer producer by capacity, we are really focused on this right now. And in fact, we have been for most of 2021.
(07:12)
In potash I can tell you that in 2021, we produced a million tonnes more than we’d originally planned to do. We had a couple of events in 2021 that precipitated that decision. The industry lost a potash mine in the middle of the year last year. And then also we sourced some export restrictions placed on Belarus. And so in response to those two events, we came together as a potash business unit within Nutrien to see what we could do, and we produced almost a million more tonnes than we originally planned. Now with the situation we’re faced with today, we are again planning to produce close to 15 million tonnes of potash in 2022, which is another million tonnes more than we originally planned as we were thinking about our budget for this year.
(07:53)
So if you think about 2022 compared back to 2020, we’re going to produce about 20% more than our original plan. So again, trying to bring on production as quickly as we can for those listeners who maybe are familiar with potash mining or maybe visited a potash mine, these are major industrial and mining complexes and it takes a lot of time and investment and some additional people to bring this production to bear. So we’re going as quickly as we can. That’s on potash.
(08:20)
In nitrogen and phosphate I can tell you we’re running at capacity, at maximum capacity, and the only events that might be preventing that would be some planned turnarounds or planned maintenance that we have at those facilities or some unplanned outages we have. But again, wherever possible across all of our nitrogen and phosphate sites across North America and Trinidad, we’re running those plants as hard as we can again to try and address some of the supply shortfall we’re seeing right now.
Mike Howell (08:47):
Chris, you also mentioned commodity supplies, wheat, corn, cotton with the situation in the Ukraine right now, I know they’re one of the leading producers of wheat in the world. Somebody’s going to have to take up the slack. I know they’re trying to get a crop planted over there, but it’s a lot of trouble trying to get that done with everything else that’s going on. It’s a little too late for the US to fill in on that wheat market for this year, but I’m looking for wheat prices to stay up and probably a big wheat crop in the US this fall. Is that something you’re looking at as well?
Chris Reynolds (09:17):
Yeah, I agree, Mike. Again, this wheat market really signaling to growers to, again, wherever possible, we need them to plant those acres and maximize those yields. I thought it’s interesting in response to this situation as well is that you’ve seen India actually looking to step up some of their exports of wheat. The Australians will be getting ready to plant their winter wheat crop as we speak here, where here we are in the middle of April. So Canada as well, hopefully getting a little bit of moisture across the prairies. They had a very dry year last year trying to get some more moisture there across the prairies, enable them to plant some more acres. So again, the world’s really looking to those agricultural economies that have surplus available to export, really looking for them to maximize that to try and alleviate some of this supply pressure with the loss of Ukrainian production, what we’re thinking is going to be the loss of Ukrainian production and then some of the interruptions that Russia’s going to have getting their product to market as well.
Mike Howell (10:13):
Right. We’re looking at the negative side and the high input cost. Let’s look at the positive side a little bit. Growers do have the good commodity prices right now that we’ve mentioned a little bit. You mentioned cotton. I’ve been dealing with cotton my entire life, and I don’t think I ever remember cotton being over a dollar for more than a few months at a time, but we’ve been over a dollar for about six months now. So cotton market really looks good as well as the corn and wheat markets. So it’s not a complete tragedy. I know costs are out there and it’s going to cost more to produce this crop, but looks like the growers are going to be able to compensate that with increased grain prices and commodity prices on the back end.
Chris Reynolds (10:50):
As I said earlier, really focused on how can we alleviate some of these supply shortfalls that have been bought on by these various events stemming all the way back to February 2021. And the other thing we’re trying to do, Mike, is really make sure that there’s good information in the marketplace, and I appreciate you allowing me this opportunity to maybe share some of that market information so that we can ensure that people understand that there are really global supply and demand dynamics at play here that are determining this price, whether it’s for ag commodities and then in turn for fertilizer products. So it’s really important that there’s good, factual information in the marketplace to explain what’s going on today.
Mike Howell (11:29):
That’s right. Chris, another thing that we haven’t really touched on is fuel prices. I passed a diesel fuel station today and it was right at $5 for a gallon of diesel, and it seems like it’s still going up. We rely heavily on diesel fuel to move these products up and down the road. The transportation costs, even if we’re shipping things by train or by a vessel in the ocean, we still have to pay transportation costs on that and it’s out of our control and these prices just keep going up. So there’s a lot of factors in this situation that we don’t have control over.
Chris Reynolds (11:59):
No, you absolutely right Mike. And as you look across, really the whole supply chain energy is a huge component of that, not just for transporting our products, but in the case of nitrogen for producing our products as well. In fact, if you think about a tonne of ammonia, close to 70%, seven, zero per cent, of the cost that goes into producing that tonne of ammonia comes from natural gas. And so we’re seeing today, again, sort of middle of April timeframe, and BTU of gas costs six to seven dollars. So again, an input cost that we don’t control, but it has an impact on our cost of production for sure.
Mike Howell (12:34):
Well, Chris, we’ve talked a lot about different factors that are affecting these markets today. Is there anything that we haven’t talked about that you think we need to mention?
Chris Reynolds (12:42):
I think what happens in these types of markets when you see these prices increasing as much as they have is that there can be a lot of emotion that can come into this market sometimes. And I was in this industry in 2008, the last time we saw significant increase in fertilizer prices, ag commodity prices, energy prices, and there was a lot of speculation and speculative money in those markets at that time. I think this time’s a little different, Mike. I think the fundamentals very strong in terms of what’s determining these prices. And as I said, at Nutrien, what we’re really focused on is, okay, how can we bring more production to the market as safely and as quickly as possible to try and alleviate some of these supply shortfalls?
(13:20)
So I think communication in these sorts of markets is key. At Nutrien we want to partner with our customers and sort of walk beside them through these markets with information, with supply of the products as much and as quickly as we can. And so I would just convey to all our listeners that we want Nutrien to be seen as a partner here during these times, and we’re going to get through this together. That’s the most important thing.
Mike Howell (13:41):
Okay. Well, Chris, probably the most often asked question I get these days is everything that goes up has got to eventually come back down. Any projections on when this thing may turn and start coming back down?
Chris Reynolds (13:53):
Yeah, that’s a great question, Mike. I need my crystal ball to be working here. It’s interesting, Mike, as we came into this year and let’s say the fourth quarter of last year, as we were thinking about 2022, we’re expecting that the spring season looked fairly firm and solid in terms of a demand outlook and therefore a price outlook. And then we were getting ready for more of a traditional reset, if you like, in prices as we have looked at the second half of 2022. But again, with the unprecedented events going on in the Ukraine and the spillover impact into what’s happening in Russia, and then the spillover from that in terms of energy prices, Mike, I think it feels to me like we’re going to be in this fairly firm pricing environment all the way through 2022 and probably into 2023.
(14:37)
It’s because of how unpredictable this situation is. It’s really hard to make a good forecast right now. There’s a lot of volatility in this pricing. I think that these fertilizer prices in some fertilizer markets will mean that we see some demand destruction. And unfortunately, because of the loss of traditional Russian and Belarusian supply, we probably need to see that demand destruction because there’s just not going to be the ability for other producers to pick up the slack and the supply shortfall left by Russia. So I think there’ll be volatility, I think, all the way through this calendar year of 2022. But in general, I see it staying quite firm, and again, this is just my personal opinion, but yeah, 2022, and then I think we’ll see some spillover into ’23 as well.
Mike Howell (15:20):
Okay. Well, Chris, we sure appreciate you being with us today. I’m sure our listeners appreciate you giving us this information and letting us understand a little more about what goes into these markets. Maybe it can help them better manage their fertilizer dollars and understand where this money is actually going.
(15:37)
Listeners, I want to thank you for tuning in this week. Join us again next week when Dr. Cristie Preston joins us to talk about phosphorus. So we’ll be going through all things related to phosphorus and how the plants can utilise phosphorus. Until next time, this has been Mike Howell with The Dirt.
