CIBC NotesEQUITY RESEARCH
September 11, 2022 Industry Update
La Nia Three-Peat?
Key Points
La Nia Expected To Persist Through Winter And Possibly Next Spring:
The U.S. CPC now puts a 91% probability the La Nia weather phenomenon
will persist through the September to November timeframe, and a 54%
chance it will last through January to March 2023. It would be the first such
event of the 21st century to span three consecutive winters in the northern
hemisphere. The longer-than-expected La Nia is another reason that could
keep crop prices elevated going into 2023, given its potential to impact
growing conditions in South America, Australia, India, Southeast Asia, and
even the U.S. 2023 spring (should the La Nia extend to that period).
Market Awaits USDA’s September 12 Crop Reports: Consensus (Dow
Jones survey) estimates imply that USDA will cut its 2022/23 corn production
crop estimate once again. Consensus also expects USDA's estimate for
2022/23 U.S. ending corn stocks to drop from 1.388B bu. in August to
1.180B bu. in September, the lowest in 10 years if realized. This would
provide a strong argument for continued elevated corn prices.
Russia Threatens To Block Ukraine Grain Trade: Russian President
Vladimir Putin said Russia and the developing world had been “cheated” by
the Ukrainian grain export deal. December wheat rose +7% W/W to
$8.70/bu. (highest closing price since July 11) and December corn futures
rose 3% W/W to $6.85/bu. (highest closing price since June 22).
Potash Buyers Anticipate Price Erosion, Limiting Sales: Potash prices
continue to weaken, with Brazil prices down $15/t W/W to $775/t and
Southeast Asia prices down $50/t W/W to $825/t. Brazil’s August MOP
imports dropped 34% Y/Y vs. August 2021 to 985kt, though the volume for
January-August 2022 was still up 21% Y/Y at a record-high 9.41Mt. Belarus
rail shipments are ramping up (~450kt), though still substantially lower Y/Y.
Nitrogen Prices Hold Despite Sharp Slide In European Gas Prices: U.S.
Midwest urea prices declined 3% W/W to $718/st, but are still +16% higher
M/M. U.S. Midwest ammonia prices rose +7% W/W to average $1288/st.
European gas prices have eased over the past few weeks (though still very
elevated), with Dutch TTF prices reducing to ~$60/MMBtu from ~$90/MMBtu
two weeks ago. Just over 50% of European ammonia capacity remains
curtailed (no new European nitrogen shutdowns were reported last week).
Northeast Asia Caustic Prices Rise Further: Northeast Asian export
prices rose +6% W/W to $550/dmt-$600/dmt. Cargoes are likely to be
heading to Europe to supplement a shortfall, given the continent's energy
crisis.