Itafos Inc V.IFOS

TD Notes

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Monthly Agriculture Update

Potash Prices Little Changed; Nitrogen Sees Further Declines Crop Prices Remain Strong

• Fertilizer Equities: Fertilizer equities declined over the past month. On average, the peer group was -5% m/m (NTR also -5%). Meanwhile, the S&P 500 and S&P/ TSX were -1% and flat m/m, respectively. Regarding valuation, the peer group's EV/FTM EBITDA multiples declined m/m (NTR's valuation was -13%). 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$130.00 target price.

• Agriculture Update: U.S. crop supply remains tight. The USDA's most recent WASDE report (published May 12) forecasts 2022/2023 ending stocks for U.S. corn and wheat to decline 6% and 5% y/y, respectively, while soybeans are forecast to increase 32% y/y (albeit from very low levels). Notably, planting progress for U.S. corn and soybeans is currently tracking slightly below the 5-year averages, while spring wheat is more meaningfully behind schedule (wet and cool weather in certain regions impacting fieldwork). Regarding U.S. winter wheat crop conditions, the market remains concerned about crop quality/yields.

• Crop Prices: After a sharp rally (from already elevated levels) following Russia's invasion of Ukraine, U.S. crop prices remain strong. Over the past month, U.S. soybean and wheat futures were +2% and +6%, respectively, while corn futures were -4%. Prices of U.S. corn, soybeans, and wheat are trading near their 10-year highs, with grains/oilseeds facing the prospect of tighter supplies (note: 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 seen following the onset of the conflict 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 were little changed over the past month and remain at or near recent highs (U.S. MidWest West and Brazil prices ~118% and ~198% above their 10-year historical average levels, respectively).

• Nitrogen prices continued to decline in recent weeks due largely to slow demand (NOLA urea now ~35% below its late-March peak, while Tampa ammonia is ~38% below its recent high). Still, nitrogen prices continue to be very elevated vs. historical levels (NOLA urea and Tampa ammonia ~85% and ~126% above their 10-year historical average levels, respectively).