CIBC NotesEQUITY RESEARCH
March 19, 2023 Industry Update
Higher Weekly Corn Prices Highlight Ag.
Countercyclicality
Key Points
Corn futures performed remarkably well last week (May corn at $6.3/bu., up 3% or
17c W/W). Four daily announcements totaling 2.111Mt of corn sold to China provided
strong support, as did further cuts to Argentina corn production estimates. The
rebound in corn prices in the face of broader equity market / macroeconomic turmoil
and big crude oil price losses implies considerable underlying strength. Still, old-crop
demand fundamentals are problematic, and the potential for a large acreage figure in
USDA’s March 31 Prospective Plantings Report represents downside new-crop risk.
China Battling New Surge In African Swine Fever: As per recent reports, the
number of positive detections exploded after the Chinese new year holiday. Though
still too early to call, a potential widespread outbreak of ASF in China would be
bearish for soybeans and corn due to reduced feed demand (lower corn/soybean
imports). It would be bullish for soymeal and hogs as China would need to import
more U.S. pork. In the 2018/19 marketing year (last major ASF outbreak), China’s
annual soybean imports dropped ~10%-15% Y/Y.
Spring Weather Outlook Points To Favourable Corn Belt Planting Conditions
(Positive For Fertilizer Demand): The NWS released its 90-day forecast for the
April-June period. Forecasts for a hot/dry weather in the Southern Plains could
negatively impact the spring wheat crop (supporting wheat prices). But the bulk of the
Corn Belt (main area of corn/soybean) should experience favourable planting
conditions, supporting fertilizer demand. Recall, U.S. spring fertilizer demand was
negatively impacted last year due to planting delays.
Potash Price Declines Slow, Markets Await India Contract: Brazil and Southeast
Asia spot prices declined $10/t W/W and $5/t W/W respectively to ~$460/t. According
to CRU, Canpotex may have pulled out of contract negotiations with IPL for now over
a lack of agreement on pricing, though this has not been confirmed. Earlier
expectations were for an imminent contract settlement at roughly $450/t CFR, but a
lower price may also be a possibility.
U.S. Urea Prices Rebound Amid Seasonal Demand; April Tampa Ammonia
Contract Likely To Settle ~$100/t Lower: U.S. NOLA urea prices rose to $316/t (up
6% W/W). In the ammonia market, Northwest European prices ($455/t, down 10%
W/W) slid further below the cost of production ($535/t).
Methanol – Sluggish Demand Recovery In China: MEOH’s share price was down
~8% W/W, as concerns of a global recession/slowdown intensified. Fundamentally,
methanol spot price markets were flat to down last week, with U.S. prices down 6%
W/W to average $316/mt (strong supply) and China prices flat W/W at an average of
$291/mt (sluggish China demand).
Asian Caustic Prices Weaken Further: CHE.UN’s share price was down ~10%
W/W. Fundamentally, Northeast Asian export prices settled lower at $350/dmt-
$365/dmt (down 3% W/W or 24% M/M). That said, price support for caustic has begun to emerge as some of the main integrated producers have started scaling down to stem further margin erosion, as PVC prices have also started to trend downwa