Ag Growth International Inc T.AFN

TD Notes

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Monthly Agriculture Update

Fertilizer Prices Up Sharply in Response to Russian Invasion Crop Prices Have Also Risen

• Fertilizer Equities: Fertilizer equities performed strongly over the past month, as Russia's invasion of Ukraine has driven sharp increases in what were already elevated fertilizer, grain, and oilseed prices. On average, the peer group was up 16% m/m, while Nutrien modestly outperformed (+19% m/m). Meanwhile, the S&P 500 and S&P/TSX were +5% and +4% m/m, respectively. Regarding valuation, the peer group's EV/FTM EBITDA multiples were mixed m/m (NTR's valuation was flat), as market value increases were largely offset by higher forward earnings estimates (note: earlier today, we increased our NTR estimates notably to reflect recent industry and Nutrien-specific developments – link to our NTR Action Note). All of the peer group's members (including NTR) continue to trade below their three- and five-year average valuations. We rate Nutrien as BUY with a US$125.00 target price.

• Agriculture Update: The USDA's most recent WASDE report (published March 9) saw 2021/2022 estimated ending stocks for U.S. corn and soybeans decline 6% and 12%, respectively, on the back of higher forecast exports. Note, although up vs. the prior year, corn and soybean ending stocks are forecast to remain low by historical standards.

• Crop Prices: Already elevated by historical standards, various key crop prices have rallied further since Russia's invasion of Ukraine, with grains/oilseeds facing the prospect of tighter supplies. Note, Russia and Ukraine are the largest and third largest global wheat exporters, respectively, while Ukraine is also a major corn exporter. U.S. wheat and corn futures increased over the past month (+10% and +7%, respectively), while soybean futures were +2%.

• Fertilizer Markets: Global fertilizer prices, which were also already elevated by historical standards before the conflict, have rallied sharply in recent weeks, as the market contends with major supply disruption risks. Note, Russia accounts for ~20% of global potash supply, ~23% of ammonia, and ~14% of urea, while Belarus (also sanctioned) accounts for a further ~20% of global potash supply. Key drivers to recent fertilizer price increases include imposed financial sanctions/ potential additional sanctions, higher natural gas prices, transportation/shipping constraints, and buyer unwillingness to transact with Russian exporters.

• Global spot potash prices have increased sharply, and prices remain at historically-high levels. Since late-February, the Brazil potash price is +43% (+ $340/mt), the U.S. MidWest West potash price is +12% (+$85/st), and the SE Asia potash price is +35% (+$215/mt).

• Global nitrogen prices have also risen sharply over this period, driven by concerns over supply disruptions and a steep rise in feedstock costs (includes sharply higher natural gas costs, most notably in Europe, which has led to various nitrogen production shutdowns/curtailments in the region). The NOLA urea price is +42% (+$265/st) since late-February.