CIBCEQUITY RESEARCH
May 8, 2022 Industry Update
Healthy Margins In Agriculture/Fertilizer
Industry
Key Points
Several more agriculture/fertilizer companies (NTR, MOS, CF, CTVA,
AGCO, CNH) reported Q1/22 earnings this week, providing a positive
outlook for crop and crop input pricing supported by tight agricultural/fertilizer
markets. While some companies are keeping an eye on potential demand
“rationing” given the surge in crop input pricing and cost inflation, farm
margins are at very healthy levels (notably above historical averages) and
much different than 2009.
Our key takeaways from Q1/22 reporting (which we discuss in detail in this
report) include: 1) Farm margins are very healthy despite the surge in input
costs (it could take at least two years to replenish grain stocks); 2) Potash
market expected to remain very tight well beyond 2022 (NTR/MOS supply
response unlikely to fill the global supply void left by reduced Russia/Belarus
shipments); 3) North American nitrogen production advantage should
continue (NTR/CF saw significant nitrogen EBITDA margin expansion in
Q1/22, despite gas prices more than doubling Y/Y); and 4) inflationary
pressures offset by higher pricing for ag. equipment players such as
CNH/AGCO (note, AFN reports Q1 results on May 10, after market close).
China Domestic Potash Prices Climb To New Highs On Supply Fears,
As Prices In Other Regions Ease Slightly: Brazil (down $35/mt or 3%
W/W to $1140/t) granular potash spot price eased this week off near-record
levels. But China domestic port wholesale prices continue to move higher,
and hit an average of $765/t (RMB 5,015/t) this week, a record nominal high.
U.S. Corn Planting Falls Further Behind, But Still Too Early To Worry:
14% of the U.S. corn crop was planted as of May 1, 19 percentage points
behind the five-year average. While spring planting is behind schedule,
farmers have the ability to plant a considerable amount in a short span. In
2013, farmers planted 43% of the intended crop in a single week in May.
USDA will report its WASDE report on May 12 that will include the first
official estimates for the 2022/23 crop season. The big question with corn is
whether USDA lowers its yield to reflect the slow planting pace. The focus
will be on how the agency adjusts estimates for the Ukraine conflict.
At Least $6.4B Of Ukrainian Agricultural Infrastructure Damaged; Up To
1.5Mt Of Grain/$50MM Worth Of Ag. Equipment Stolen: The Ukrainian
delegation to the WTO said at least $6.4B worth of Ukrainian agricultural
infrastructure and resources has been destroyed. UN’s FAO estimates 25Mt
of grain is trapped in Ukraine.