Itafos Inc V.IFOS

TD Notes

[retiredcf]

Monthly Agriculture Update

Potash Prices Remain Very Elevated; Nitrogen Weaker of Late Crop Prices Have Continued to Rise

• Fertilizer Equities: Fertilizer equities exhibited mixed performance over the past month. On average, the peer group was +3% m/m (NTR was flat). Meanwhile, the S&P 500 and S&P/TSX were -7% and -4% m/m, respectively. Regarding valuation, the peer group's EV/FTM EBITDA multiples declined m/m (NTR's valuation was -10%). All of the peer group's members (including NTR) continue to trade well below their three- and five-year average valuations. We rate Nutrien as BUY with a US$125.00 target price (see our recently-published company update and Q1/22 preview).

• Agriculture Update: The USDA's most recent WASDE report (published April 8) saw 2021/2022 estimated ending stocks for U.S. soybeans decline 9%, while corn remained unchanged (corn and soybean ending stocks are forecast to remain low by historical standards). The USDA's Prospective Plantings report (published on March 31) projects 2022 planted area for the three major U.S. crops at 227.8mm acres, a very slight increase y/y and the highest level since 2014.

• Crop Prices: After a sharp rally following Russia's invasion of Ukraine, U.S. crop prices continued to increase over the past month. U.S. corn and wheat futures were +12% and +7%, respectively, while soybean futures were +3%. Prices of U.S. corn, soybeans, and wheat are trading near or above their 10-year highs, with grains/oilseeds facing the prospect of tighter supplies (Russia and Ukraine are the largest and third largest global wheat exporters, respectively, while Ukraine is also a major corn exporter).

• Fertilizer Markets: Global fertilizer prices, which were also already elevated by historical standards before the conflict, rallied sharply in the weeks following the invasion on supply disruption concerns. 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 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 increased notably following the invasion, and prices have remained firm in recent weeks. Since late-February, the Brazil potash price is +51% (+$395/mt), the SE Asia potash price is +54% (+$325/mt), and the U.S. MidWest West potash price is +10% (+$73/st).

• Meanwhile, global nitrogen prices increased relatively more sharply than potash prices in the initial period following Russia’s invasion of Ukraine (at one point, the NOLA urea price had risen 69%), driven by concerns over supply disruptions and a steep rise in feedstock costs. However, nitrogen prices have weakened in recent weeks (NOLA urea now ~29% below its late-March peak, while Tampa ammonia is ~12% below its recent high). Still, nitrogen prices continue to be elevated vs. late-February levels.

April 29, 2022