EQUITY RESEARCH
July 26, 2024 Industry Update
Ammonia Tampa August Contract Price
Spike
Ammonia Tampa August Contract Up 14% M/M On Limited Regional
Supply: The August Tampa settlement has been agreed on by Yara and
Mosaic at $475/t CFR, up $60/t on the $415/t CFR fixed for July. An increase
had been anticipated amid tightening availability out of the U.S. Gulf and gas
curtailments in Trinidad that could worsen over the coming weeks, though a
$60/t jump may take some market participants by surprise. The settlement is
the highest agreed since April, which was also fixed at $475/t CFR.
Back To 2022 – Brazil To Import Less Potash In H2/24? Brazil's potash
imports are likely to decrease in H2/24 as the country could repeat 2022
patterns and low availability of phosphates for delivery in time for the
2024/25 soybean crop may further exert downward pressure on MOP
purchases. Brazil has imported 6.94Mt in H1/24, ~17% higher Y/Y. In 2022,
Brazil imported 6.88Mt in H1/22, up 37% Y/Y, driven my concerns about
supply following the Ukraine war. Following the record (at that time) H1
imports in 2022, H2 imports dropped to 4.9Mt. 2024 could see a similar
pattern, though the extent of the drop could be less profound.
Cordonnier Raises U.S. Corn Yield; Small Drought Footprint For Major
Crops: Cordonnier raised his U.S. corn yield forecast by 1.5 bu. to 181.5
bu./acre as weather has been favourable for pollination and there are no
threatening conditions seen in the near-term forecast. That increased his
corn production estimate to 14.97B bu. (vs. USDA at 15.1B bu.). As of July
23, D1 (moderate) to D4 (exceptional) drought covered 20% of the U.S., with
another 28% facing D0 (abnormal dryness). But the majority of that drought
was outside of the major crop production areas of the central U.S.
AGCO Grain & Protein Sale Highlights AFN’s Undervaluation: AGCO is
selling its grain and protein business (AGCO G&P) to AIP for US$700MM.
The transaction price implies a TTM EV/adj. EBITDA multiple of 8.3x, vs.
AFN’s TTM multiple of ~6.6x and forward 2025E multiple of ~6.0x. Note,
AGCO G&P is similar to AFN in terms of revenue (2023 sales of ~US$1.1B),
but AFN has grown its revenue at more than a 10% five-year CAGR (vs. flat
growth for AGCO G&P). Further, AFN operates at more than double the adj.
EBITDA margin profile (~19% vs. ~8% for AGCO G&P). Link to note
MEOH – Higher Monthly North American Posted Contract Price / Q2/24
Results Next Week: MEOH’s posted North American contract price for
August was set at $695/t, up $16/t (+2%) vs. the July price. MEOH reports
Q2/24 results on Tuesday, July 30, after market close. We forecast Q2/24
adj. EBITDA of $183MM (consensus: $172MM), ~14% higher both Q/Q and
Y/Y. The focus for the quarter will be on: 1) progress on the planned G3
start-up (management had previously commented that this should happen in
Q3/24); 2) status of the Egypt (EMethanex) facility, and anticipated operating
rates over Q3/24 (we are now assuming a 70% rate in Q3/24); and 3)
potential changes to MEOH’s full-year 2024 volume guidance (MEOH prior
guidance: ~7Mt).