Maria Cappuccio

The International Monetary Fund (IMF) confirmed the upswing in economic activity is strengthening, with global growth projected to rise to 3.7% in 2018. Broad- based upward revisions are noted for the euro area, Japan, emerging countries in Asia, Europe and in Russia that more than offset downward revisions for the US and the UK. But in many countries growth remains weak and inflation below target in most advanced economies. Commodity exporters, especially of fuel, have been hard hit due to the sharp reduction in foreign earnings. For policymakers, the welcome cyclical pick-up in global activity provides a window of opportunity to tackle key challenges, to boost output ensuring the benefits are more broadly shared and to build resilience against potential risks.

NEAR-RECORD HARVEST BOOSTS GRAIN AND OILSEED SUPPLIES
Global production of cereals, coarse grains and oilseeds, is on track to produce a near record global harvest of 3.1bn/t in 2017. Wheat production is forecast at 751mt (million tonnes) with notable crops in Russia, Kazakhstan and Ukraine, with coarse grains lower at 1,319mt and a larger oilseed output at 577mt.

Global wheat consumption is largely unchanged from last season while much of the rise in corn consumption is in China, where government measures are in place to stimulate demand in order to reduce corn stocks. The global wheat stocks-to-use ratio is forecast at a record 36%. By contrast global corn stocks are anticipated to fall for the first time in five years due to a smaller harvest and increased use. Agriculture prices are expected to edge up in 2018 due to reduced supplies, with grain, oil and meal prices rising marginally.

FAO FOCUS ON THE ROOT CAUSES OF MIGRATION

The UN’s Food and Agricultural Organi- zation (FAO) chose the theme for World

Food Day 2017, ‘Change the future of migration. Invest in food security and rural development’ to encourage the international community to respond to the root causes of migration-namely, poverty, food insecurity, inequality, unemployment and lack of social protection as more people migrate because they do not have the option to stay in their homes and on their lands.

The FAO’s Director General Jose´ Graziano da Silva said,“In 2015 there were more than 240m international migrants in the world, 40% more than in 2000. The number of internal migrants’ who stay within their own countries and regions, mainly moving from rural to urban areas, has already passed 740m, unprecedented in the history of mankind.” Investing in food security and rural development, can harness migration’s potential to support development, laying the foundation for long-term recovery and inclusive sustainable growth. 

MODEST INCREASE IN FERTILIZER DEMAND BY
2021
Against the backdrop of well supplied agricultural markets, the International Fertilizer Association (IFA) forecast a modest increase in fertilizer demand in 2017/18 to 188mt. Longer-term, relatively flat prices for a number of agricultural commodities reflect prospects for ample supplies and weaker growth, resulting in a modest increase in fertilizer demand to 199mt in 2021/22. Potash demand is expected to grow firmly by over 2.1%, phosphate 1.5% and nitrogen 1.2% each year.

CHALLENGING ENVIRONMENT FOR THE FERTILIZER SECTOR IN 2017
While operating within a more stringent and regulatory environment, the combin- ation of uneven global nutrient demand, soft economic prospects, depressed crop prices, rising market competition and volatile energy prices created high uncertainty in fertilizer markets throughout the year. IFA’s Director General, Charlotte Hebebrand, drew attention to the significant new capacity additions, driven by investment decisions made four to eight

FERTILIZER PRICES $ PER TONNE FOB 2009–2015

years ago, especially for nitrogen and potash that will exacerbate supply/demand imbalances notably in 2017–2018, no improvement is expected before 2019, with

supply to remain abundant, up to 2021.

MERGERS RESHAPE GLOBAL CHEMICAL AND SEED MARKETS
Dow Chemical and DuPont successfully completed their planned $130bn merger to form DowDuPont (DWDP), a holding company, in September this year. Post- merger, DWDP intends to split within the next 18 months, into three independent publically traded companies, agriculture, specialty products and materials science. ChemChina’s $43bn takeover of Syngenta, also received the green light, although legal claims against Syngenta arising from the sale of genetically modified corn in 2013 and how the claims will be settled, led to downgrades by ratings agencies S&P and Fitch. Potash Corp and Agrium are expected to complete the U$36bn merger by the end of the year. Once merged, the new company will be called Nutrien, with the head office in Saskatoon, Canada, bringing together PotashCorp’s huge network of fertilizer mines with Agrium’s global direct-to-farmer retail network.

Meanwhile the proposed Bayer AG and Monsanto U$66Bn merger faces scrutiny by the EU antitrust regulators, amid concerns that such a merger may reduce  competition for pesticides, seeds and plant traits. The deal one of several in the agricultural chemical and seed markets, comes amid fears that bigger, more powerful suppliers would be better placed to push-up prices while cutting back on the development of new herbicides and pesticides

GOOD DEMAND AND CHINESE SHUTDOWNS UNDERPIN FIRM PRICES
Prices of nitrogen have soared 60% in the US, with similar hikes in Brazil, India and the Middle East, the move higher could continue into November with good demand in South America and India, despite a significant global surplus, new capacity and a bumper harvest, to pressure already weak grain prices. Better weather in the US, after a slow start to harvest and winter wheat seeding, could also stimulate some demand. US spot prices for urea, climbed to an 18- month high, supported by the demand from India for a greater quantity than the market had anticipated coupled with a sharp fall in Chinese urea exports, which fell by 600,000/t in July and August and by 45% to 5.4mt for the year to August, due to the rising cost of coal and the government’s anti-pollution campaign.

Hurricanes Harvey and Irma caused disruption to US shipments, making it more difficult for companies like Mosaic and CF Industries. Benchmark contract price for ammoniaforOctoberattheportofTampa, Florida, rose to $245/t, up $30 month-on- month and potash prices edged up 0.5%. Partly offsetting gains phosphate rock prices dropped 8% as new capacity added to oversupply, and DAP prices fell back on weak demand and oversupply. Fertilizer markets continue to face relatively weak global demand due to low crop prices. Markets remain well supplied with adequate stocks and growing low-cost capacity. Fertilizer prices are expected to strengthen by 3% in 2018 on moderate demand growth, although growing low-cost capacity, expected to weigh on prices.

WHEAT PRESSURED BY BURGEONING STOCKS

The 2017 wheat harvest forecast at 751mt, the second largest crop on record, will increase global stocks for the fifth consecutive year to a record 268mt (China 127mt). For coarse grains the harvest at 1,319mt is lower and with demand similar to last year, global coarse grain stocks are expected to decline for the first time in five years. Wheat futures remain under significant pressure, CBOT Dec Contract for wheat closed down at $4.246/bu (Oct 30). fob offers for Russian wheat have risen to $195/t, US Hard Red Winter Wheat $217/t/Soft Red Winter Wheat $190/t, French Grade 1 Rouen $191/t (Oct 30).

GLOBAL WHEAT AREA PROJECTED LOWER IN 2018

Winter wheat plantings for the 2018 underway in the northern hemisphere, too much rain, or too little, delayed winter grain sowings in some areas. The International Grains Council, projects the wheat area, on a harvested basis for 2018, to be fractionally lower year-on-year. Russia is expected to expand the wheat area and in the EU the wheat area is expected to be

broadly similar. Dry conditions hampered US wheat seeding nevertheless, most, but not all, analysts support lower US wheat plantings, due to poor economic and price relationships for winter and spring wheat varieties, compared with sorghum and corn. China cut its minimum purchase price for wheat by 2.5% for 2018 to 2,300

yuan ($346/t) well above world prices.

PLANTINGS HAMPERED BY INSUFFICIENT RAIN IN MATO GROSSO
Soybean plantings across Brazil are mixed. In southern Brazil, rains accelerate planting, while the central-west region is suffering from irregular rainfall that threatens to damage the second corn crop. Parana´, a large producer of soybeans, has planted 53% of the area, while in Mato Grosso, the main soybean-producing state, irregular and insufficient rainfall, caused serious delays, with only 27% of sowings complete. USDA’s provisional estimate for Brazil’s soybean output is forecast at 107mt in 2017/18.

CORN OUTPUT TO FALL IN BRAZIL

Following the bumper corn harvest last year Brazil’ corn production is expected to be lower at 95mt in 2017/18. Dr Michael Cordonnier Soybean & Corn Advisor, Inc. believes that the combination of reduced acreage and weather concerns in key states will cut production. Heavy storms, high winds, huge hail stones have caused serious delays in Rio Grande do Sul, while continuing dry weather delayed corn plantings in Minas Gerais and Parana where corn acreage is expected to fall by 31%. 

Lower corn prices may encourage farmers to switch to soybeans, other small grains or to cover crops. Conab estimated Brazil’s cotton acreage to rise by 5-15% in 2017/18.

ARGENTINE FARMERS TO PLANT MORE CORN

Large soya stocks, low domestic prices and high export taxes are expected to encourage Argentine farmers to increase corn acreage. USDA forecast Argentina’s corn crop at 42mt in 2017/18. But, growing conditions are less than ideal, as parts of Argentina experienced excessive rainfall, saturating up to 4–6m/ha of the most productive farmland.

US CORN ACRES TO RISE IN 2018

Pat Westhoff head of the University of Missouri’s Food and Agricultural Policy Research Institute (FAPRI) acknowledged that while much can change in the US market before the final 2018 planting decisions are made next spring, an improved outlook for corn returns relative to those for soybeans in recent weeks may support a rise in corn acreage to 93.2m/acres a gain of 2.3m/acres in 2018. FAPRI’s estimate is based on recent futures prices, lend support to corn over soybeans, lower fertilizer prices and crop rotation patterns that also favour corn; while, this year’s record US soybean crop will result in season-average price of $9.07/bu, 40¢ below the 2016 crop’s average, likely to further increase the bias towards corn.

The global corn crop is forecast at 1,039mt in 2017, and includes a huge US corn crop of 363mt currently being harvested with farmers in some key states well behind the pace. Despite large supplies markets rallied on firm US export sales data, CBOT Corn Futures Dec ’17 closed up at $3.48/bu (Oct 27 ’17). Corn 3YC FOB US Gulf $157/t (Oct 27 ’17).

NITROGEN CAPACITY EXPANDS DESPITE CHRONIC OVERSUPPLY
North America saw an excess capacity of nitrogen in the recent quarters including imports from China. The excess supply put downward pressure on nitrogen prices in North America, and affecting producers including CF Industries, Terra Nitrogen, PotashCorp and CVR Partners.

Yara, the world’s biggest nitrogen fertilizer producer, unveiled a 13.6% drop in earnings to NOK709m for the July-to- September quarter, on revenues flat at NOK23.8bn. The drop in earnings, reflected a weaker dollar and a rise in costs of energy, expected to continue showing into next year. Yara’s President and CEO Svein Tore Holsether acknowledged that results could have been worse without the boost to urea prices from Chinese shutdowns and supportive farm margins. He confirmed that despite the uptick in prices towards the end of the quarter, the market remains essentially fundamentally supply-driven.

Global ammonia capacity to rise to 234mt NH3 in 2021, large increases expected in EECA, North America and Africa partially offset by massive reductions in China. North America capacity is growing while rising demand in Latin America and South Asia is expected to support higher imports by 2021. Between 2016 and 2021 the IFA forecast global nitrogen supply to expand by 1.8%, with demand of 1.2% per annum, with a rising surplus in 2017–2019. PotashCorp expects nitrogen markets to remain volatile to the end of 2017, leaving full-year gross margin “significantly weaker” than last year. The comments followed a July-to-September quarter in which gross margin for nitrogen dropped 70% year on year to $21m, the weakest result in nearly nine years, reflecting a drop in average realized prices for ammonia to a 14-year low of $168/t. Unlike urea, ammonia prices did not benefit from Chinese shutdowns.

UREA CAPACITY RISING BUT LITTLE GROWTH AFTER 2019

Global urea capacity is projected to increase by 17mt to 226 mt, with most of the growth mainly in North America, EECA and South Asia regions, occurring by 2019. The IFA estimate global urea supply at 200mt in 2021, growing at 1.6% p.a. over 2016, with demand for all uses forecast to increase especially in Latin America, South Asia and Africa.  

HIGHER COSTS AND ENVIRONMENTAL CONCERNS RESTRICT CHINA’S EXPORTS
Urea prices surged 8% in the third quarter and are up a similar amount for the first nine months of 2017 on strong import demand, notably from Brazil where imports soared 41%. Supply outages in Indonesia, the Middle East, and North Africa, and limited export availability from China, helped push prices higher. Chinese exports declined sharply due to higher production costs, principally coal and increasing environmental constraints. Winter restrictions on coal production in China could further elevate costs. Demand in the US is expected to rise with autumn application, but significant new domestic capacity is expected to reduce imports.The global urea market is projected to be oversupplied with new capacity anticipated from countries with plentiful low-cost natural gas production, including Iran, Malaysia, Nigeria, and the US.

POTASH CAPACITY TO GROW BY 20% BY 2021

Global potassium capacity is forecast to grow to 65.5mt K2O in 2021, with new projects in Canada, Russia, Turkmenistan, Belarus and China. The IFA forecast global potassium supply to increase by over 9mt to 53.3mt K2O in 2021, North America region will have the largest potential supply in 2021 (35%), followed by EECA (34%), East Asia (14%) and other regions (17%).

The rise in PotashCorp’s 62–65mt global shipments in 2017, is expected to continue in 2018. Demand for potash in North America to rise to 9.3–9.8mt, while in Latin America, shipments to rise to 12- 12.5mt to meet substantial agronomic need. For China, nutrient affordability is expected to drive consumption forecast at a record 15.5–16.mt. Improving demand environment in India, supported by higher minimum support prices and a favourable monsoon, likely to increase shipments to 4–4.5mt up on last year. Elsewhere in Asia prices for palm oil and improved moisture conditions, likely to support a rise in shipments to 9-9.5mt.

RISING CAPACITY AND MODERATE DEMAND INCREASES SURPLUS
Firm demand saw China’s imports jump more than 25% during the first eight months of this year. Russian fertilizer producer Uralkali agreed to a new contract with India through June 2018 at $240mt, up $13mt from last year. While global demand for potassium is forecast to grow by 11% faster than either nitrogen or phosphates by 2021. But with the large capacity additions in this year and into 2018, the

$4.1bn Bethune mine in Canada, owned by German-based K+S and the two projects developed by EuroChem, owned by Russian tycoon Andrei Melnichenko, contribute to a growing potential surplus likely to exceed 6.3mt in 2018 reaching 7.7mt K2O in 2021.

Earlier in the year Credit Suisse forecast “significant downside risk” for potash prices, for the second half of 2017 and for 2018, a drop in demand in response to weak farmer economics, foreign exchange volatility and rebounding inventories. Prices, however, have held at Midwest terminals standing at $255/t despite rising supplies, resilient prices attributed to a window of opportunity for fall offers, before price relief from the new Saskatchewan K+S plant is realized. PotashCorp announced on Sept 20 that it would temporarily cut production at its Allan mine for ten weeks from November and its Lanigan mines for eight weeks from December.

Previously, without the closures, the outlook was for softer prices after the fall application season, but with a cut in output, prices in the 4th quarter and into the 1st quarter in 2018 expected to be more stable.

LARGE SUPPLY OF PHOSPHATE ROCK EMERGING MOSTLY FOR LOCAL USES
Global phosphate rock supply is expected to grow by 10% to 249 mt in 2021, with 80% of the increase occurring in Africa and West Asia. Traded phosphate rock prices have declined sharply over the past year, triggered by overcapacity, particularly as OCP (Morocco) increased new rock capacity in-line with expansions at downstream facilities. Lower prices have severely pressured producer margins. Suppliers of low quality rock, like those in

Egypt, are operating on thin margins while some phosphate rock projects, like Kropz in South Africa, have been delayed in-part due to difficult market conditions.

MOROCCO AND SAUDI ARABIA TO INCREASE CAPACITY
Global phosphoric acid capacity is projected to expand, to 64.1mt P2O5 in 2021. The main processed phosphates would grow to 52.5mt P2O5 in 2021, especially in Morocco and Saudi Arabia.The global supply of phosphoric acid would increase each year by 2.4 per with demand to grow by 1.8%, pointing to a rising potential surplus from 2017-2019, stabilizing in 2021.

Phosphate DAP prices fell on weak import demand in some countries and rising supply, including higher exports from China, the world’s largest producer. TSP prices edged up 2%, Hurricane Irma caused production outages in Florida that lifted prices, but phosphate prices are expected to weaken again as markets remain oversupplied, with the prospect of new capacity in Morocco and Saudi Arabia

Mosaic’s CEO Joc O’Rourke saw positive developments in the phosphates industry following a challenging 2016 and despite Chinese exports in the first half of 2017, being higher than anticipated, Mosaic expects China to export fewer tonnes of phosphates compared to last year, which is key to the company’s near-term outlook. PotashCorp forecast market fundamentals will continue to weigh on phosphate prices, following the July-to-September quarter in which the group’s sales values averaged $365/t, down $20/t year-on-year, resulting in a $45m loss in phosphates, in gross margin terms, compared with a profit of $15m a year before, the worst result since 1998.