EQUITY RESEARCH
July 12, 2024 Industry Update
China & India Potash Settlements Expected
To Provide A Floor For The Market
The new China and India MOP contracts have finally concluded after months
of deliberation. The China contract was concluded first at $273/t ($34/t lower
than the previous Chinese contract settled in June 2023). India’s contract
was settled at $279/t CFR ($40/t below the previous India contract). We view
the fresh China and India settlements as positives, as they are expected to
provide a floor price for the potash market. The new headline contract prices
are unlikely to lead to price shocks in the near term as they are fairly well
aligned with current levels in other markets. Although contract volumes have
not been disclosed, China, in particular, will likely pull in substantial volumes,
which will help keep suppliers comfortable in the coming months.
Potash Demand Firming: Canada potash exports rose 27% in May 2024
(+11% YTD), with U.S. May imports (including re-exports) climbing 44% Y/Y
(+26% YTD) and Brazil June imports up 33% Y/Y (H1/24 imports up 17%
Y/Y). Canada January-May YTD exports to the U.S. (including re-exports),
Indonesia, China and India rose 19%, 148%, 44%, and 10%, respectively.
Phosphate Affordability Threatening U.S. Midwest Demand: DAP in the
Midwest is priced at $588/st (down 2% W/W) and MAP is at $688/st (flat
W/W). Significantly lower grain prices have caused concern in the market as
participants begin to discuss demand destruction. DAP’s current level of
affordability trails only that of the 2023 crop as the worst in the past decade.
July WASDE—Lack Of Bearish Report Data For Corn, Soybeans:
USDA’s corn and soybean ending stocks forecasts declined from last month
for both 2023/2024 and 2024/2025. That triggered light corrective buying
immediately following the reports, though favourable weather conditions and
still-hefty projected ending stocks likely limit the upside in the near term. The
wheat crop estimate came in higher than consensus, which kept pressure on
that market. See the table in Exhibit 5 for details on USDA’s estimates.
North American Tractor/Combine Unit Sales Weakness Continues In
June: U.S. and Canadian farm-size (>40HP) tractor sales fell 11% and 14%
Y/Y in June 2024, respectively. Also, U.S. and Canadian combine sales fell
31% and 21% Y/Y in June 2024, respectively. We note that the
tractor/combine data has a more direct read-through for companies such as
DE and CNH, rather than for AFN, which operates in the grain
storage/handling market (crop size a bigger driver for demand).
Big Canadian Crop Despite Weather Ups And Downs? Following heavy
rains in June, only a few areas of the Western grain belt are left in drought
vs. 99% on April 1. Long-range forecasts are for warmer-than-normal
temperatures and below-normal rainfall for the July-September period.
However, we believe there is now every probability of above-average yields
and production this year. Recall that, in June, the AAFC forecast 2024
production for all principal field crops to rise to 94.4Mt (assuming trend
yields), up ~5% Y/Y and ~4% vs. the five- and 10-year average