What’s Happening in The Market – October 2021
October Market Update
October has been an unusual month of weather; late rains in early October have been welcomed by most of you, but the rain and hail the last week can stay away. It’s too late now to be of any benefit, and we all want to get the grain in the bin. Let’s hope that with harvest beginning, the weather fines up and everyone can have a smooth run.
We all know harvest is a busy time, and the last thing you want to think about is farm inputs – but unless you’ve got all of your fertiliser and chemical ordered for next season, it’s going to be something you’ll need to organise while you’re on the header.
Supply Chains around the world are starting to crack – you’re seeing that as much as we are in everything you’re doing. There’s plenty of guys this year with header fronts, chaser bins and other farm machinery that hasn’t arrived in time for harvest. It’s going to spread to spare parts for your headers this harvest, and it’s no different for us when it comes to ordering your chemical. We’re trying our best to order ahead, but the clear message for you is BE ORGANISED – we have reasonable allocations of stock coming in, but we have little upside in our volumes like we normally do. Key products will be short this year, so there will be no opportunity for top-ups in season. Please sit down with your agronomist, do a draft farm plan and order what you need for summer and sowing with your local Crop Smart sales rep. We continue to see price rises on nearly all products across the board, and this process is ongoing.
Last month we wrote Phosphates over $1100 aren’t attractive and suggested taking a percentage of next seasons requirements to minimise supply issues and hedge your bets on price… Four weeks on and $1100 tonne seems cheap, and supply has tightened even further!
What hasn’t changed is the uncertainty around China and exports of phosphates freeing up out of the Red Dragon. Getting clarity on the China situation is next to impossible, with a lot of speculation on what will or won’t happen. With China accounting for over 50% of Australian phosphate imports traditionally, our market has turned to Moroccan & Arab Gulf sources which have significantly higher freight costs. This, combined with high product costs, equates to record high MAP/DAP pricing. If China continues to restrict exports, supply will be constrained and prices could firm even further.
In addition to the Chinese export restrictions, the Indian market is reporting very low inventories (approx. one-third of ‘normal’). To put some numbers around this, in September 2019, India reported over 6 million tonnes of DAP stock; in September 2021 the reported figure was 2 million tonnes.
As reported last month, Natural Gas Prices in Europe had a massive rally forcing producers in that region to reduce, or even halt, production. Reports of producers stopping production and selling their gas contracts for huge profits tells the story.
On the supply side with Chinese export restrictions, US producers impacted by the Hurricane and Europe shutting down the markets moved to other sources; Egypt & the Arab Gulf (where Australia traditionally sources from). It’s not difficult to work out what that has done to the price of Urea out of Egypt/Arab Gulf.
On the demand side, as we have mentioned previously, India is a big importer of Urea. For their most recent tender (India consolidates purchases via the government centrally) they requested 1.5 million tonnes and ultimately only purchased just over 400,000 tonnes. Clearly, they are significantly short and this demonstrates how tight stock is globally at the moment.
At current levels, there is no incentive to purchase locally. We have a bit of time before our winter (and spring) season kicks off, but the challenge will be seeding blends as decisions need to be made realistically by March or, worst-case April. Another challenge we will face is a lot of demand from around the world occurs in Jan-March 2022, and with low inventories and strong demand, it doesn’t look good for prices.
Right now it doesn’t look like Urea will soften any time soon; the best chance for prices softening at the moment would be if global demand softens or if China commenced exports. Neither seems likely at the moment, but if 2022 has taught us anything, anything is possible.
Given the uncertainty, fertiliser companies remain hesitant to offer tonnes until it’s loaded on the vessel and sailed. Therefore we continue to see very little tonnes hitting the market at present. Unfortunately, we expect this trend to continue for some time.
As previously communicated, once we get tonnes confirmed, we will continue to be in touch with the aim of keeping you informed to make the best decision for your business.
Please take the time over the next few weeks to organise and plan your cropping program. If you need help, please feel free to give one of the team a call.