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Agriculture Investing
Agriculture Market Forecast: Top Trends That Will Affect Potash and Phosphate in 2024
Jan. 30, 2024 01:45PM PST
The potash and phosphate markets moved closer to historical norms in 2023, but some volatility remained. What does 2024 have in store for these critical fertilizers?
Attasit saentep / Shutterstock
Prices for diammonium phosphate (DAP) and potash slid through the first half of 2023, but as the second half of the year wore on, prices diverged, with DAP gaining strength and potash continuing to trend lower.
The differential was largely due to record high pricing in 2022 that saw farmers reduce their use of DAP and potash products in favor of experimenting with nutrient efficiency and enhanced products.
“The potash market certainly remains exposed to further disruption to production into 2023 and could see supply tighten quickly if demand recovers rapidly from its current lull," Humphrey Knight of CRU Group said at the start of 2023. "However, a more gradual recovery in demand appears more likely, meaning supply should remain adequate.”
How did potash and phosphate perform in 2023?
DAP prices began 2023 at US$637.50 per metric ton (MT), far from April 2022's record level of US$1,005. Meanwhile, prices for potash opened the year at US$508.75 per MT.
As mentioned, prices for both DAP and potash fell in the first half of the year as supply lines began to stabilize and as lower demand caused by 2022's high prices continued. However, price declines in Q1 and Q2 were of little help to farmers, as much of the application of DAP and potash occurs in the fall — this meant farmers were locked in to higher prices from 2022. Despite these declines, H2 prices were still above historical norms.
Potash prices were further impacted in H1 by a June deal under which private potash marketing company Canpotex, which is owned by fertilizer companies Mosaic (NYSE:MOS) and Nutrien (TSX:NTR,NYSE:NTR), agreed to export potash to Chinese markets at a rate of US$307 per MT. This price was US$115 lower than a deal struck with Indian importers in April, and the agreement led Fitch to downgrade its year-end potash price projection to US$400 from US$450.
Supply chain stabilization in H1 was largely attributable to rebounding Russian potash exports. In 2022, the country's muriate of potash exports fell 37 percent as economic sanctions hampered Russian companies' ability to process transactions and obtain shipping insurance. In July 2022, the UN negotiated a deal that allowed shipments of grain and fertilizer to once again pass through the Black Sea unhindered. However, the pact, which had helped to reduce food prices by more than 20 percent globally, expired when Russia refused to agree to an extension in July 2023.
Heading into the second half of the year, DAP prices jumped from US$445.50 on July 27 to reach US$510 on July 31 after supply shortfalls saw buyers pay premiums for lower volumes. Potash moved from US$328 at the end of June to US$353.13 by the start of August following strikes at the Port of Vancouver that saw shipments restricted.
Nutrien, which is the largest global producer of potash, indefinitely paused a ramp up in its potash production capacity in August in response to market conditions. The planned expansion was announced in June 2022 and would have seen production increase to 18 million MT annually by 2025, 5 million MT above its 2020 production.
Despite the fallout from tensions between Israel and Hamas, which began escalating on October 7, fertilizer prices have largely been unaffected, with potash trending down after its August price bump and DAP prices increasing as demand from farmers once again increased ahead of fall fertilizer application.
Potash prices had fallen to US$311.88 by December, while DAP closed the year at US$577.50 on December 29.
What will happen to potash and phosphate prices in 2024?
Fertilizer prices are expected to continue trending down in 2024. According to a December report, Fitch expects average annual prices for DAP and potash to fall to US$400 and US$300, respectively.
Josh Linville, vice president of fertilizers at financial services group StoneX, told the Investing News Network in January that many of the black swan events seen in previous years appear to be in the rearview mirror. However, he did note that due to current geopolitical instability, the potash and phosphate markets may not be out of the woods.
“Wars continue to rage between Russia and Ukraine as well as Israel and Hamas, with fears of other nations joining the fight,” he explained via emailed comments. “Normal vessel flows are being threatened with attacks, which could impede global flows. We continue to believe that all fertilizer markets will be much more mundane compared to recent years … but we are not many events away from returning volatility.”
Linville was referring to escalating attacks by Houthi rebels on merchant ships in the Red Sea, where the Suez Canal accounts for 7 percent of global potash shipments and 5 percent of phosphate rock shipments.
Even though an American task force has been targeting rebels, the increasing boldness of the attacks is deterring many companies from sending ships through the Red Sea. Ships between European suppliers and Asian importers are being rerouted, primarily around the southern tip of Africa, which is adding significant time to deliveries.
So far, the impact of route changes has been minimal, but continued delays may begin to affect profitability and could lead to corrections as shipping costs come in at about 10 percent of fertilizer costs.
In terms of potash output, Linville said he doesn't see pauses like Nutrien's becoming a trend. “There are still new plants and expanded production plans that should see the light of day, but it will not be of the size originally thought,” he said.
He noted that DAP prices have continued to rise through the start of 2024 due to tight inventories in the US following a fall run that emptied the system. This has pushed prices for product entering through the Port of New Orleans to US$590 three months ahead of the start of the spring growing season in North America.
Investor takeaway
The fertilizer space saw price corrections in 2023 after the previous year's highs.
Looking forward to 2024, lower levels are expected, although it's clear that black swan events could skew the outlook. Tensions along major shipping routes are still simmering and may play into market volatility.
As Linville explained, “Exports from Russia have continued with no issue, but an expanded conflict or sanctions could put those in jeopardy.” Investors should keep these factors in mind when looking at the potash and phosphate markets.
Don't forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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Dean has been writing in one form or another since penning stage plays in his youth. He is a graduate of both Emily Carr University and Simon Fraser University, with a BFA in photography and a BA in communications.
As a writer, Dean has traveled throughout BC and the Pacific Northwest covering cultural events, interviewing small business owners and working alongside fellow writers and photographers from publications like Rolling Stone Magazine, Spin and the Georgia Straight.
Dean has a keen interest in investing, and enjoys learning about the mining industry and better understanding the technical aspects of trading. In his spare time, Dean is an avid home chef, ponders the space-time continuum and makes his own cider. On weekends he can be found cycling the Seawall, exploring farmers markets or sampling the city’s local craft breweries.
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Dean has been writing in one form or another since penning stage plays in his youth. He is a graduate of both Emily Carr University and Simon Fraser University, with a BFA in photography and a BA in communications.
As a writer, Dean has traveled throughout BC and the Pacific Northwest covering cultural events, interviewing small business owners and working alongside fellow writers and photographers from publications like Rolling Stone Magazine, Spin and the Georgia Straight.
Dean has a keen interest in investing, and enjoys learning about the mining industry and better understanding the technical aspects of trading. In his spare time, Dean is an avid home chef, ponders the space-time continuum and makes his own cider. On weekends he can be found cycling the Seawall, exploring farmers markets or sampling the city’s local craft breweries.
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