P&KToday: Curtailed Production, Higher P Prices and Decision Time

February 25, 2016 11:51 AM

P&K was lower on the week.

  • DAP $93.73 below year-ago pricing -- lower $5.12/st on the week to $489.33/st.
  • MAP $99.17 below year-ago -- lower $9.89/st this week to $496.13/st.
  • Potash $116.17 below year-ago -- lower $6.27/st this week to $369.63/st.
  • The average cash corn price figured in to P&K this week is $3.47.
  • The national average corn basis softened 5 3/4 cents from last week to 1/2 cent below March futures. The national average cash corn price fell 13 1/4 cents from last week to $3.59 1/4. Basis is softer than the three-year average, which is 7 1/2 cents above futures for this week.

PhosphateMosaicCo, America's largest phosphate producer and second largest potash producer said earlier this month it will curtail production by as much as 400,000 tonnes to combat near-term weak demand projections. The company says it will begin rotating plant shutdowns during the first quarter 2016 noting in a press release, "...we are adjusting our production levels to match immediate demand and manage our margins." a lot is working against phosphate demand at present, both in the United Sates and across the globe.

Currency devaluation against the U.S. dollar has crimped demand in South America and disappointing monsoons in India will trim prospects there as well. Meanwhile, U.S. farmers are waiting as long as they can before booking nutrient in a market which has trended lower for some time now, especially those farmers who have unpriced bushels still in the bin. A decent corn rally would swing those bin doors open and if futures catch an upward drift, spring demand for phosphate could easily outstrip expectations and possibly even create a supply shortage.

Mosaic is more bullish long term on phosphate demand. "With the recent price volatility and decline in raw material costs, buyers appear to be delaying purchases. This is lengthening the seasonal period of weak demand," said Rick McLellan, Senior Vice President, Commercial. "Today's crop nutrient prices, including phosphates, are attractive to farmers globally and we expect a strong demand response after this seasonally slow period."

MAPINdexedI would disagree that phosphate prices are "attractive to farmers", as the above quote from the MosaicCo press release touts. Right now, anhydrous ammonia is priced for a $3.30 cash corn bid regionally; potash is priced for $3.13 per bushel cash corn and urea is at $3.35.

Phosphate prices are much higher by comparison. This week, DAP is priced for $3.64 cash corn and MAP is at $3.62. In yesterday's Midweek Cash report from Pro Farmer, the national average cash corn price per bushel was pegged at $3.59 1/4. With DAP and MAP priced for an average $3.63 cash corn, N & K are what I would call attractive, but phosphate, not so much. U.S. phosphate producers have been successful at cutting costs ahead of the current downdraft in fertilizer prices but if the best they can offer is phosphate priced for $3.63 corn, farmers will continue to wait for phosphate prices to fall farther.

The announcement that MosaicCo is curtailing production is ill timed and while it may support returns to shareholders, producers are dreaming if they think phosphate prices are attractive to farmers struggling with debt management, credit acquisition, unpriced old-crop bushels and declining crop returns. Phosphate has bucked the trend of oversupply in commodities and fertilizer, but in doing so, may have priced itself out of the U.S. agricultural production budget.

PotashPotash is the other side of the coin. Lackluster monsoons in India have halted potash imports into that country and South America is still struggling with trade inequities related to currency exchange rates. Canadian producers have cut potash production, but the rest of the globe appears to be bent on keeping potash oversupplied as they vie for marketshare, each unwilling to blink first. This is the same deal as with crude oil. Keep producing as much as you can for fear of losing customers to the guys who are not afraid of thin margins. This game of chicken has greatly benefited potash prices and farmers should take advantage of potash's low price this spring. After two years of solid corn yields, soils will need to have vitamin K replaced and this is the spring to get it done.

We are still waiting for signs of a market bottom in retail fertilizer. I'm a buyer all day long on potash, even if the market does continue lower. Phosphate prices may have already exhausted the downside, especially with Mosaic waving the white production flag. Also keep in mind, the fertilizer segment is notorious for its market gamesmanship as it walks the balance between shareholders and end users. Since Mosaic is so large, they may have the juice to have put a floor under U.S. phosphate prices simply on the announcement of production cuts. Either way, the time to make the decision on phosphate for spring is fast approaching. I expect farmers to reject overpriced phosphate and lean more toward potash. That is not to say phosphate applications will be skipped, but as producers curtail production and retail prices increase, expect farmers to respond to the higher prices by doing a little curtailing of their own.

By the Pound --

DAP is priced at 50 3/4 cents/lbP2O5; MAP at 46 1/2 cents/lbP2O5; Potash is at 31 cents/lbK2O.

The following is an updated table of P&K pricing by the pound as reported to your Inputs Monitor for the week ended February 19, 2016.

P&K pricing by the pound -- 2/25/2016

DAP $P/lb

MAP $P/lb
Potash $K/lb
$0.50 3/4
$0.46 1/2
$0.61 1/4
$0.56 1/2
$0.40 1/2