CIBC NotesEQUITY RESEARCH
March 20, 2022 Industry Update
Demand Destruction Concerns Growing As
Fertilizer Prices Surge
Key Points
As potash and urea prices hit new records this past week, concerns over
demand destruction are growing (Brazil is targeting to reduce fertilizer usage
by 20% for the 2022/2023 growing season). Despite this, we would note that
North American fertilizer producers (NTR, MOS, etc.) are very well
positioned as EBITDA and EPS are much more sensitive to price than
volume, and supply lost from Russia/Belarus/Ukraine is likely to exceed
volumes lost from potential fertilizer demand destruction.
Potash - NTR’s Potash Production Increase Unlikely To Alleviate Tight
Supply Situation: Brazil spot prices hit another historic high at $1,065/t
(+12% W/W). Sanctions have stifled Uralkali’s ability to export product via its
principal seaborne export terminal at St. Petersburg (~8Mt/year); neither
NTR’s announcement to increase potash production (primarily from H2/22
onwards) nor CP’s lock-out notice are likely to alter the global supply-
demand balance near term.
Nitrogen – More European Capacity Being Curtailed: Producers within
Europe (Yara, OCI, BASF, Borealis, Fertiberia) are idling or curtailing
production. Further, Russian producer EuroChem stopped production at
Lifosa and Antwerp, and the key Yuzhnyy port in Ukraine remains closed.
U.S. NOLA urea was up 6% W/W to $885/st.
DAP/MAP Prices Approaching Record Levels: The Brazil MAP spot price
rose to $1,225/t (+$150/t or +14% W/W) vs. the all-time record price of
$1,345/t in 2008. U.S. Tampa DAP prices rose to $1,190/t (+$130/t or +12%
W/W) while NOLA barge DAP prices rose to $955/st (+$30/st or +3% W/W).
Brazil National Fertilizer Plan: The government set a goal of reducing
Brazil’s fertilizer imports from 85% to 45% by 2050, though still doubling the
amount of fertilizers used. Brazil aims to cut fertilizer use by 20% in 2022/23.
Pro Farmer Survey - 2022 “Big 4” U.S. Planted Crop Acres To Increase
Slightly: Despite an anticipated 1.5MM acre drop in corn acres, combined
corn, soybean, wheat and cotton acres are forecast to rise 1.7MM acres from
last year to 240.2MM acres.
Ukraine Crop Prospects Revised Significantly Lower: While U.S. corn,
soybean and wheat futures were down 3%, flat and down 4%, respectively,
vs. a week ago, they remain at very elevated levels supported by the Russia-
Ukraine conflict (area sown to spring grain crops in Ukraine could fall 39%
from year ago) and further reductions to Brazil’s soybean crop