WEBVTT - War in Iran Is Creating a Fertilizer Crisis Like Never Before 0:00:02.720 --> 0:00:10.600 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.040 --> 0:00:21.040 Hello and welcome to another episode of the Authoughts podcast. 0:00:21.160 --> 0:00:22.520 I'm Tracy Alloway. 0:00:22.280 --> 0:00:23.640 And I'm Joe. Why isn't thal. 0:00:24.160 --> 0:00:28.080 Joe, if you were a Roman general or a feudal 0:00:28.120 --> 0:00:31.920 lord and you wanted to wage war on your next 0:00:31.920 --> 0:00:34.240 door neighbors, I don't know. This is completely hypothetical. 0:00:34.479 --> 0:00:35.959 Yeah, what time of year? 0:00:36.200 --> 0:00:36.400 Yes? 0:00:36.720 --> 0:00:39.720 Really, what time of year do you think would be 0:00:39.760 --> 0:00:41.320 the best time to actually do it? 0:00:42.560 --> 0:00:44.720 You know, I haven't thought about this before. If I'm 0:00:44.720 --> 0:00:46.000 being totally honest. 0:00:45.720 --> 0:00:47.919 You're not sitting at home thinking about if you were 0:00:47.920 --> 0:00:49.800 a Roman general, not all hours of the day. 0:00:49.880 --> 0:00:52.640 I'm the one guy who doesn't think about stuff like that. 0:00:52.760 --> 0:00:54.600 I don't know much about Rome go on. 0:00:55.400 --> 0:00:58.720 Okay, So for much of human history, if you were 0:00:58.760 --> 0:01:00.760 going to go to war, you would I try to 0:01:00.840 --> 0:01:04.400 avoid certain times of year, and those times were generally 0:01:04.760 --> 0:01:08.480 the spring sewing season and the fall harvest. And there's 0:01:08.520 --> 0:01:10.520 two reasons you would do that. One is because a 0:01:10.600 --> 0:01:14.360 lot of your soldiers are actually farmers. Okay, they're part 0:01:14.360 --> 0:01:17.480 time soldiers, so their day job is farming. And the 0:01:17.480 --> 0:01:20.160 second one is you don't want to completely disrupt your 0:01:20.160 --> 0:01:20.759 food supply. 0:01:21.319 --> 0:01:23.080 Right, that makes a ton of sense. I hadn't thought 0:01:23.120 --> 0:01:24.840 about that, but yes, it makes a ton of sense, 0:01:25.000 --> 0:01:25.360 all right. 0:01:25.400 --> 0:01:28.600 So fast forward to twenty twenty six, and we've clearly 0:01:28.880 --> 0:01:33.280 forgotten much of human history because we have a US 0:01:33.520 --> 0:01:37.759 Israeli war against Iran that is coming at perhaps the 0:01:37.800 --> 0:01:40.679 worst possible time in terms of agriculture. 0:01:41.120 --> 0:01:43.200 You know what, again, I hadn't thought about this at all. 0:01:43.319 --> 0:01:46.720 So I did learn over the last week. You know, 0:01:46.760 --> 0:01:49.680 when I think about the shutdown of the straight up 0:01:49.880 --> 0:01:54.000 mus and so forth, obviously I think oil and energy. 0:01:54.480 --> 0:01:57.560 I have become aware through your writing and others that 0:01:57.640 --> 0:02:02.520 it's also a major choke point thruway for related food stuffs, 0:02:02.520 --> 0:02:06.440 including fertilizer. I had not heard anything about the timing element, however, 0:02:06.520 --> 0:02:07.760 until you just boil it up just now. 0:02:07.960 --> 0:02:11.280 Yeah, So everyone's getting ready for spring planting at the moment, 0:02:11.360 --> 0:02:14.600 So this is precisely when you theoretically would be using 0:02:14.720 --> 0:02:17.480 a lot of fertilizer. And just in the past week 0:02:17.600 --> 0:02:21.120 or so, we've seen prices for urea, which is you know, 0:02:21.280 --> 0:02:24.160 one of the I guess most popular types of fertilizer. 0:02:24.200 --> 0:02:27.400 Those have shot up like twenty five percent. Yeah, It's 0:02:27.400 --> 0:02:29.120 also fascinating to me. I didn't know this, but we 0:02:29.160 --> 0:02:31.800 have all these different types of urea. So you have 0:02:31.880 --> 0:02:36.480 Egyptian granular urea, New Orleans urea. We're going to talk 0:02:36.480 --> 0:02:38.360 about all of it. I've wanted to do a fertilizer 0:02:38.400 --> 0:02:40.840 episode for a long time. I want to talk about 0:02:40.840 --> 0:02:44.480 what's going on with the Moroccan fertilizer industry as well. 0:02:44.520 --> 0:02:48.480 But I am weirdly excited to be talking about urea today. 0:02:48.880 --> 0:02:49.679 I'm looking forward to it. 0:02:49.760 --> 0:02:52.119 Let's do it, all right, and we have the perfect guest. 0:02:52.240 --> 0:02:54.720 We're going to be speaking with Alexis Maxwell. She's an 0:02:54.760 --> 0:02:58.160 analyst on the Bloomberg Intelligence Agriculture team and she's been 0:02:58.200 --> 0:03:00.920 writing a lot about this. So Lexus, thank you so 0:03:01.000 --> 0:03:01.760 much for coming on a. 0:03:01.840 --> 0:03:03.639 Loots Well, thank you for having me. 0:03:04.120 --> 0:03:07.200 Is that framing correct? Is this kind of not a 0:03:07.280 --> 0:03:10.520 great time, slash the worst possible time to be driving 0:03:10.639 --> 0:03:11.959 the price of fertilizer up? 0:03:13.000 --> 0:03:17.040 Yeah, definitely. I couldn't think of a worse time to 0:03:17.160 --> 0:03:20.919 have a supply side shock and resulting surge and fertilizer 0:03:21.040 --> 0:03:27.040 prices for farmers. Effectively, just about everywhere, the second quarter 0:03:27.240 --> 0:03:31.360 is the timeline when the Northern Hemisphere starts their planting season. 0:03:31.760 --> 0:03:35.520 What is your real Yeah, so, urea is the. 0:03:35.440 --> 0:03:39.960 Most commonly used form of nitrogen. Crops are going to 0:03:40.040 --> 0:03:43.480 demand a variety of fertilizers, but the big three that 0:03:43.560 --> 0:03:47.320 you have to use are going to be your nitrogen, phosphate, 0:03:47.520 --> 0:03:50.880 and potash. And in the industry we call it your npks. 0:03:51.720 --> 0:03:55.280 Urea is a form of nitrogen. I think about this 0:03:55.520 --> 0:03:58.960 like a step ladder. If you want urea, the way 0:03:58.960 --> 0:04:02.200 that you get it is by starting first with natural gas, 0:04:02.520 --> 0:04:05.640 you crack it into ammonia, and then you run another 0:04:05.840 --> 0:04:08.480 chemical conversion on it and you turn it into a 0:04:08.560 --> 0:04:13.120 granular product that is easy to apply, easy to transport, 0:04:13.160 --> 0:04:16.520 and is about forty six percent nitrogen. And for those 0:04:16.560 --> 0:04:21.240 of you who've never applied fertilizer or planted crops, you 0:04:21.480 --> 0:04:24.359 probably bought some flowers at some point in your life 0:04:24.440 --> 0:04:26.720 and you get a little packet that has some like 0:04:26.960 --> 0:04:29.279 white crystals in it. Yeah, you're going to have yourria 0:04:29.320 --> 0:04:30.920 in there to your flowers were out. 0:04:31.160 --> 0:04:33.920 I don't know that that's interesting. Okay, So one thing 0:04:34.080 --> 0:04:37.000 I know about fertilizer other than most of it smells 0:04:37.040 --> 0:04:39.480 pretty bad. But you always hear this thing about the 0:04:39.480 --> 0:04:44.240 haber Bosch process and how the guy who basically, I 0:04:44.240 --> 0:04:48.320 guess invented the way we get fertilizer nowadays is responsible 0:04:48.440 --> 0:04:52.080 both for a massive boom in the human population because 0:04:52.080 --> 0:04:55.320 everyone gets to eat more, but also responsible for a 0:04:55.360 --> 0:04:58.040 lot of death at the same time. Can you talk 0:04:58.080 --> 0:05:00.320 about that, I guess the origins of all of this. 0:05:01.440 --> 0:05:04.880 Yeah, I think I'll call it one of the greatest 0:05:04.880 --> 0:05:08.280 paradoxes of humanity, you know, Tracy, I can't think of 0:05:08.600 --> 0:05:12.920 an invention that, on one hand is more responsible for 0:05:13.080 --> 0:05:17.479 billions of lives but also at the same time generates 0:05:17.480 --> 0:05:20.080 a product that is used as a weapon of war. 0:05:20.640 --> 0:05:22.760 I think some people will tell you, you know, with 0:05:22.839 --> 0:05:27.400 the global population just over seven billion, about half of 0:05:27.480 --> 0:05:29.960 the people on the Earth today are here because of 0:05:30.080 --> 0:05:35.279 conventional fertilizers. If we were to, let's just say tomorrow, 0:05:35.680 --> 0:05:39.960 stop using conventional fertilizer, and we converted everything back to 0:05:40.120 --> 0:05:44.320 organic and we formed every single acre of arable land 0:05:44.360 --> 0:05:47.040 out there, they say that the Earth could really only 0:05:47.040 --> 0:05:51.640 support a population of about four billion people. So conventional 0:05:51.720 --> 0:05:57.040 fertilizer is I think the most important invention to the 0:05:57.080 --> 0:05:59.920 most number of people on this planet. 0:06:00.160 --> 0:06:05.000 Okay, explain to me. So urea comes from its downstream 0:06:05.120 --> 0:06:09.160 from natural gas, and so explain to me, like what happens, 0:06:09.360 --> 0:06:11.880 Like why not ship the gas? I mean, right now 0:06:11.920 --> 0:06:14.679 nothing is shipping or very little is moving through the street. 0:06:15.080 --> 0:06:18.400 But why is the process such that the first step, 0:06:18.480 --> 0:06:22.680 the transformation of natural gas to urea, happens at the 0:06:22.800 --> 0:06:26.000 source rather than later down somewhere else on the supply chain. 0:06:27.080 --> 0:06:31.520 Yeah, so you'll find nitrogen fertilizer plants will often be 0:06:31.680 --> 0:06:36.440 co located with natural gas because to ship natural gas 0:06:36.480 --> 0:06:39.400 you have to chill it to very low temperatures and 0:06:39.440 --> 0:06:44.000 it's very expensive to move it. In contrast, urea is 0:06:44.400 --> 0:06:47.080 it's a granular. You can ship it in a as 0:06:47.120 --> 0:06:50.840 a bulk commodity item. It's much cheaper to do it 0:06:50.920 --> 0:06:53.760 that way, and you can reach a vast number of people. 0:06:54.480 --> 0:06:57.400 You'll find UREA plants around the world, but most of 0:06:57.440 --> 0:07:01.240 them are really located in places with low gas because 0:07:01.400 --> 0:07:05.640 this is a competitive commodity industry. So you'll see these 0:07:05.680 --> 0:07:10.080 plants in places like Russia, the Middle East, the United States, 0:07:10.520 --> 0:07:11.040 and China. 0:07:11.720 --> 0:07:14.160 Yeah, it reminds me a little bit of like aluminum, 0:07:14.200 --> 0:07:16.440 Like here is this thing that it's like Okay, you 0:07:16.480 --> 0:07:18.800 could ship it anywhere in the world. It's a lot 0:07:18.840 --> 0:07:21.960 easier to ship aluminum than it is to transport electricity 0:07:22.040 --> 0:07:26.160 via batteries. So you have the aluminum processing co located 0:07:26.160 --> 0:07:28.320 where you have cheap electricity, and then of course it's 0:07:28.320 --> 0:07:31.000 sort of trivial to move it elsewhere. How much of 0:07:31.040 --> 0:07:35.400 the world's urea is in conflict affected regions right now? 0:07:37.280 --> 0:07:39.840 I just want to add one thing too about the 0:07:39.960 --> 0:07:43.040 urea and why we ship it. It has a very 0:07:43.080 --> 0:07:46.840 strong seasonality. So you know, when you run a large 0:07:46.920 --> 0:07:50.600 chemical manufacturing plant, you want to capture the economies of scale, 0:07:51.040 --> 0:07:53.080 and you want to run your plant three hundred and 0:07:53.160 --> 0:07:56.040 sixty five days a year. But the problem that we 0:07:56.080 --> 0:07:59.360 see in the fertilizer industry is that farmers only demand 0:07:59.520 --> 0:08:03.160 urea a very short period of the year, let's just say, 0:08:03.280 --> 0:08:05.920 like two months of the year. So that puts these 0:08:05.960 --> 0:08:10.640 manufacturers in its sort of classic snake and egg supply 0:08:10.760 --> 0:08:13.120 chain problem. What do you do with the material the 0:08:13.160 --> 0:08:15.559 rest of the year. So it's much easier to ship 0:08:15.600 --> 0:08:17.440 it out than it is to store it and keep 0:08:17.480 --> 0:08:20.560 it on hand for farmers ten months out and to 0:08:20.600 --> 0:08:21.640 take that price risk. 0:08:22.240 --> 0:08:26.120 Oh wait, now, I'm really interested how storable is UIA actually, 0:08:26.160 --> 0:08:28.520 because I think about those little packets. They seem like 0:08:28.680 --> 0:08:30.160 they could last for quite a while. 0:08:30.120 --> 0:08:34.360 So while yeah, if you have urea and you can 0:08:34.400 --> 0:08:37.000 put it in a warehouse and you can have it 0:08:37.080 --> 0:08:40.679 covered from the rain and possibly other elements, you can 0:08:40.800 --> 0:08:44.040 probably keep it on hand for at least a couple 0:08:44.080 --> 0:08:48.120 of months, probably three, four or five months. However, you know, 0:08:48.160 --> 0:08:50.920 if you have a warehouse, the way that you really 0:08:50.960 --> 0:08:53.600 maximize the value of a warehouse is by turning the 0:08:53.600 --> 0:08:57.560 inventory in your warehouse and selling that. So when you 0:08:57.679 --> 0:09:01.880 put urea in a warehouse, your takeoking on price risk 0:09:02.200 --> 0:09:04.560 over the period that since that it will sit in 0:09:04.640 --> 0:09:06.960 storage and you're not using your warehouse for what it's 0:09:06.960 --> 0:09:10.200 really designed for. So a lot of what we see 0:09:10.360 --> 0:09:14.760 with these UREA facilities it's making ship. There isn't a 0:09:15.200 --> 0:09:18.560 strategic reserve of urea the same way that we would 0:09:18.640 --> 0:09:21.960 have it like in oil for example, which is partially 0:09:22.000 --> 0:09:26.480 why this crisis is really compounding for urea at this 0:09:26.640 --> 0:09:32.160 time of year. We don't have significant storage to replace 0:09:32.200 --> 0:09:35.480 what we're losing in the Middle East. Now the Middle East, 0:09:35.760 --> 0:09:39.120 if we look at the countries that are located along 0:09:39.160 --> 0:09:43.480 the Persian Gulf. About forty five percent of the world's 0:09:43.520 --> 0:09:47.240 tradable urea comes from the Middle East, and about about 0:09:47.240 --> 0:09:51.400 twenty percent of the ammonia comes from along the Middle 0:09:51.400 --> 0:09:54.840 East as well. So if you are in the business 0:09:54.880 --> 0:09:58.040 of trying to procure a replacement for what we've lost 0:09:58.080 --> 0:10:01.559 in the Middle East, there's not really a good next 0:10:01.600 --> 0:10:05.600 best alternative at this point in time. You could try 0:10:05.880 --> 0:10:08.520 going to Russia to procure material, but a lot of 0:10:08.559 --> 0:10:13.720 the West has sanctioned Russia and their fertilizer products. You 0:10:13.760 --> 0:10:16.760 could try going to China, but China has an export 0:10:16.840 --> 0:10:20.520 band currently on their urea fertilizers and that's done to 0:10:20.600 --> 0:10:25.440 protect their domestic industry and their farmers, and that really 0:10:25.520 --> 0:10:28.760 kind of leaves you left over with places like Egypt 0:10:29.480 --> 0:10:30.960 or maybe the United States. 0:10:32.480 --> 0:10:35.120 So is most of the eurea from the Middle East 0:10:35.160 --> 0:10:36.480 does most of it going to Asia? 0:10:37.320 --> 0:10:40.160 So the Middle East is a great supplier for urea. 0:10:40.440 --> 0:10:44.640 They ship effectively everywhere every single day they're in the market, 0:10:44.840 --> 0:10:47.560 you know, a urea plant in the Middle East, just 0:10:47.600 --> 0:10:50.120 to keep their inventory sort of in balance. A lot 0:10:50.160 --> 0:10:53.000 of these producers are loading one vessel and shipping it 0:10:53.080 --> 0:10:57.920 every single day, and so where the shipments go from 0:10:57.960 --> 0:10:59.959 the Middle East depends on what time of year it is. 0:11:00.480 --> 0:11:04.959 So when farmers are demanding product, like European farmers or 0:11:05.000 --> 0:11:07.720 American farmers, in the second quarter, you'll see more of 0:11:07.760 --> 0:11:11.040 the Middle Eastern EUREA go there. But in the second 0:11:11.080 --> 0:11:13.280 half of the year, you're going to see a lot 0:11:13.320 --> 0:11:16.680 more of the UREA move to places like India and Brazil, 0:11:17.240 --> 0:11:20.800 places that have a flipped season, to the northern Hemisphere 0:11:20.840 --> 0:11:22.120 and plant at a different time. 0:11:23.559 --> 0:11:27.000 Okay, this is my chance. What's the deal with fertilizer 0:11:27.240 --> 0:11:29.960 in Morocco? Because I remember when I was in Abu Dhabi, 0:11:30.360 --> 0:11:33.480 there were a lot of you know, big national companies 0:11:33.480 --> 0:11:37.319 that were very excited about striking some sort of fertilizer 0:11:37.360 --> 0:11:39.480 deals with Morocco. What's going on there? 0:11:40.720 --> 0:11:43.640 Yeah, So Morocco is among the world's one of the 0:11:43.640 --> 0:11:47.520 world's largest producers of phosphate. So phosphate is one of 0:11:47.600 --> 0:11:53.760 those critical NPK nutrients. Morocco is expanding their phosphate production 0:11:54.000 --> 0:11:57.880 and their low cost and because of their location in Africa, 0:11:58.080 --> 0:12:01.160 it's relatively cheap freight to get it to move around 0:12:01.160 --> 0:12:05.480 the world. I think of phosphate to the Moroccan economy 0:12:05.559 --> 0:12:23.640 a little bit like oil to the Saudi economy. 0:12:25.320 --> 0:12:27.360 So if I'm looking at a ten year chart of 0:12:27.960 --> 0:12:31.560 back to Egyptian but Egyptian urea prices, they soared to 0:12:31.720 --> 0:12:35.040 over eleven hundred dollars a metric ton in the wake 0:12:35.120 --> 0:12:38.720 of Russia's invasion of Ukraine. That peak looks like around 0:12:38.800 --> 0:12:43.400 spring April twenty twenty two they got down to about 0:12:43.440 --> 0:12:45.520 a little under a three hundred dollars a metric ton, 0:12:45.760 --> 0:12:49.040 and twenty twenty four they're close to six hundred. Now, 0:12:49.520 --> 0:12:51.720 before we get to the effects of what's six hundred 0:12:51.800 --> 0:12:55.000 a ton urea? What the impact of that is, What 0:12:55.160 --> 0:12:58.800 was the impact on the twenty twenty two price bike, 0:12:58.960 --> 0:13:01.600 What were the domino effect of that massive serve? 0:13:02.920 --> 0:13:08.120 Yes, the twenty twenty two price surge was really two 0:13:08.160 --> 0:13:12.960 supply side shocks. In twenty twenty one, China started their 0:13:13.080 --> 0:13:17.120 export ban on urea and phosphate fertilizers, and the importance 0:13:17.160 --> 0:13:20.120 of China to the fertilizer market they really it cannot 0:13:20.160 --> 0:13:24.520 be overstated. So China is the marginal producer for urea 0:13:24.679 --> 0:13:29.920 and phosphate. So generally speaking, when China is exporting fertilizers 0:13:30.000 --> 0:13:33.440 prices globally will tend to fall, and when China is 0:13:33.679 --> 0:13:36.800 out of the market, prices rise to the next level 0:13:36.840 --> 0:13:41.880 of production costs. And so in September of twenty twenty one, 0:13:42.040 --> 0:13:45.400 when China slammed the door on exports, the world had 0:13:45.440 --> 0:13:50.400 to really scrambled for alternatives to supply. And then when 0:13:50.400 --> 0:13:53.360 we had the Russian invasion into Ukraine in the first 0:13:53.440 --> 0:13:57.360 quarter of twenty twenty two, we saw fertilizer prices spike 0:13:57.960 --> 0:14:01.920 on top of that because the world was unclear about 0:14:01.960 --> 0:14:06.680 how we could source fertilizers from Russia. So Russia is 0:14:06.720 --> 0:14:10.040 a high volume exporter, they're a low cost producer, and 0:14:10.160 --> 0:14:15.040 Russia also is probably really the only country that will 0:14:15.080 --> 0:14:19.800 do high volume exports of nitrogen, phosphate and potash. You 0:14:19.960 --> 0:14:22.240 name the flavor of fertilizer that you want, you can 0:14:22.240 --> 0:14:24.880 get it out of Russia. And so there was just 0:14:25.000 --> 0:14:28.120 this general surge in the industry to try to find 0:14:28.160 --> 0:14:31.760 an alternative, you know, And I mentioned earlier that when 0:14:31.760 --> 0:14:36.000 we took China out of the market, fertilizer prices had 0:14:36.040 --> 0:14:40.240 to go above the marginal producer level production costs in 0:14:40.320 --> 0:14:43.880 China and did in New supply and the way that 0:14:43.960 --> 0:14:48.280 the nitrogen cost curve is oriented. That meant the world 0:14:48.400 --> 0:14:50.760 had to go to Europe to find new sources of 0:14:50.880 --> 0:14:54.520 nitrogen and turn those plants on in order to meet demand. Well, 0:14:54.560 --> 0:14:57.960 at the time, the price for natural gas in Europe, 0:14:58.000 --> 0:15:02.000 which is the feedstock for ammonia and then eventually urea, 0:15:02.440 --> 0:15:07.400 was surging over sixty dollars per mmbtu, And so if 0:15:07.440 --> 0:15:11.280 you wanted to run the economics of what it costs 0:15:11.320 --> 0:15:14.520 to make ammonia, it's a very easy back of a 0:15:14.600 --> 0:15:18.480 napkin math to do this. It takes about thirty four 0:15:18.520 --> 0:15:22.880 to thirty six mmbtus of natural gas to produce one 0:15:22.960 --> 0:15:26.160 ton of ammonia. But if we needed thirty six mmbtus 0:15:26.240 --> 0:15:30.080 to make ammonia and I'm paying sixty dollars for natural gas, 0:15:30.240 --> 0:15:32.640 I'm looking at an ammonia price that's over twenty one 0:15:32.680 --> 0:15:34.200 hundred dollars. 0:15:34.680 --> 0:15:37.200 So if I'm a farmer in the US right now 0:15:37.280 --> 0:15:42.240 and I'm getting ready to plant spring weeds, what am 0:15:42.240 --> 0:15:44.920 I doing when I you know, I'm hopefully I have 0:15:44.920 --> 0:15:47.080 a Bloomberg terminal That would be nice as a farmer, 0:15:47.120 --> 0:15:49.040 But I'm looking at the chart of the price spike 0:15:49.200 --> 0:15:52.480 in something like UREA. What am I thinking to myself 0:15:52.480 --> 0:15:54.680 in terms of offsetting this cost? 0:15:56.160 --> 0:16:01.280 Yeah, so farmers will have probably four options or decisions 0:16:01.320 --> 0:16:03.520 that they can make at this point. And I will 0:16:03.520 --> 0:16:06.760 tell you I do think that US farmers are probably 0:16:06.960 --> 0:16:11.120 best poised to whether this storm compared to farmers in 0:16:11.640 --> 0:16:15.520 let's say, the European Union or India. At this point, 0:16:16.360 --> 0:16:18.400 if you're a farmer, what you can choose to do 0:16:18.800 --> 0:16:23.840 is you can reduce your application rates. You can switch 0:16:23.880 --> 0:16:27.400 what you're planting, let's say, from corn, to shift into soetins, 0:16:27.440 --> 0:16:33.160 which demands significantly less amounts of nitrogen. The third option is, 0:16:33.200 --> 0:16:36.680 as a US farmer, you can switch among your nitrogen products. 0:16:37.200 --> 0:16:40.200 And then the last worst option is just not plant 0:16:40.240 --> 0:16:40.600 at all. 0:16:41.200 --> 0:16:43.560 And what do you see happening right now? There was 0:16:43.600 --> 0:16:46.680 a headline, by the way earlier that I saw. We're 0:16:46.760 --> 0:16:50.880 already senators in DC are hearing from farmers talking about 0:16:50.920 --> 0:16:53.600 wanting to get relieved from wanting to get some sort 0:16:53.640 --> 0:16:56.480 of bailout. It's not as extreme, but you know, the 0:16:56.520 --> 0:16:58.680 price is to some extent global, and so we see 0:16:58.680 --> 0:17:01.480 the New Orleans price that's shooting up too, that's at 0:17:01.480 --> 0:17:04.480 five hundred and seventy five hundred and seventy pounds a time. 0:17:05.640 --> 0:17:08.959 Yeah, so this is really all you know as in economics, 0:17:08.960 --> 0:17:11.280 this is all really relative. So I want to just 0:17:11.280 --> 0:17:14.320 give some context as to why even though you know, 0:17:14.440 --> 0:17:18.399 Egypt urea is I think today close to seven hundred 0:17:18.440 --> 0:17:21.480 dollars still below about one third below the twenty two 0:17:21.560 --> 0:17:24.720 price spike, what's happening now is probably the worst it's 0:17:24.760 --> 0:17:28.240 ever been for farmers looking to buy nitrogen. And we 0:17:28.359 --> 0:17:31.159 measure that in the industry by just looking at the 0:17:31.800 --> 0:17:34.360 urea price to the crop price ratio. 0:17:34.600 --> 0:17:37.160 Oh that makes sense, and yeah. 0:17:37.000 --> 0:17:40.040 It's all relative. You know that less incremental ton of 0:17:40.160 --> 0:17:42.639 nitrogen is going to give you a yield bump, So 0:17:42.720 --> 0:17:45.119 you kind of you want to run the economics and 0:17:45.160 --> 0:17:47.840 the agronomy on if I spend a little bit more 0:17:47.880 --> 0:17:50.320 on my nitrogen, am I going to get that yield bump? 0:17:50.440 --> 0:17:52.040 So I need to know what the price of the 0:17:52.080 --> 0:17:55.760 commodity is. And if I were today to look at 0:17:55.800 --> 0:18:00.639 the urea to corn price ratio, yeah, week it was 0:18:00.680 --> 0:18:04.199 that one twenty four. The highest it's ever been is 0:18:04.240 --> 0:18:07.760 one forty three. And with the price surge that we're 0:18:07.800 --> 0:18:12.320 seeing again, this week. I expect once we have prices 0:18:12.440 --> 0:18:15.240 settle on Friday, that will set a new record for 0:18:15.280 --> 0:18:18.159 the most expensive that Urea has ever been to a 0:18:18.240 --> 0:18:18.919 porn farmer. 0:18:19.119 --> 0:18:20.919 Tracy. This is going to make a good chart in 0:18:20.960 --> 0:18:24.439 the newsletter because I just charted it as as our 0:18:24.480 --> 0:18:26.600 guest was talking about it. And yes, we are very 0:18:26.640 --> 0:18:29.359 close to this. So even though on the pure yourrea 0:18:29.440 --> 0:18:32.240 price not necessarily at all time highs, but relative to 0:18:32.320 --> 0:18:35.120 chorn we are very close to all the time highs there. Yeah, 0:18:35.160 --> 0:18:36.200 I think this is important. 0:18:36.320 --> 0:18:39.520 So the other thing I wanted to ask is you 0:18:39.520 --> 0:18:42.040 you've heard I mean, it's a running joke on the 0:18:42.080 --> 0:18:44.880 show that farmers are always complaining about something, But one 0:18:44.880 --> 0:18:48.720 of the things they've complained about is fertilizer prices. Even 0:18:48.880 --> 0:18:53.119 before you know the Iran situation, even before the twenty 0:18:53.280 --> 0:18:57.520 twenty two price spike, there's been some grumbling what's going 0:18:57.560 --> 0:19:00.399 on in the structure of the market that aims to 0:19:00.440 --> 0:19:03.640 make fertilizer prices an issue for the farming industry. 0:19:04.760 --> 0:19:07.840 Yeah, So the farming industry in the US right now 0:19:08.240 --> 0:19:14.240 is margins are incredibly thin. If we look at like, 0:19:14.320 --> 0:19:18.120 for example, the difference between what farmers pay for their 0:19:18.119 --> 0:19:22.560 inputs versus the prices that they get for their agriculture products. 0:19:22.880 --> 0:19:26.480 It hit a record negative spread in January. There's a 0:19:26.480 --> 0:19:30.320 lot of price pain out there in the US farm economy, 0:19:30.720 --> 0:19:34.040 and we're seeing Chapter twelve bankruptcies. Chapter twelve is a 0:19:34.080 --> 0:19:38.359 specialized form of bankruptcy for farms and fisheries starting to 0:19:38.400 --> 0:19:40.520 pick up here in twenty twenty five. So I'll say 0:19:40.800 --> 0:19:44.600 the economic pain is real. And if you look at 0:19:44.640 --> 0:19:48.960 fertilizer prices, they tend to cycle, just like all other commodities. 0:19:49.520 --> 0:19:52.679 The last time we really saw an amplified price cycle 0:19:52.800 --> 0:19:56.280 for fertilizer was seven and eight, kind of in line 0:19:56.320 --> 0:20:00.639 with the financial crisis. But what makes this difference is 0:20:01.119 --> 0:20:03.240 in contrast to I think it was a more of 0:20:03.240 --> 0:20:06.080 a demand cycle in No. Seven and eight that caused 0:20:06.080 --> 0:20:10.280 the amplification. But this time this is a supply side crisis. 0:20:10.440 --> 0:20:12.960 You know. I think about this as like a three 0:20:13.040 --> 0:20:16.600 legged stool. We've taken China out of the market, Russian 0:20:16.640 --> 0:20:21.680 supply seemed difficult to acquire, and now you throw in 0:20:22.400 --> 0:20:25.240 we have this global choke point for urea. In the 0:20:25.280 --> 0:20:28.240 straight up horror moves, we're almost let's say, you know, 0:20:28.280 --> 0:20:31.119 forty percent of the nitrogen that we need is you 0:20:31.160 --> 0:20:34.720 can't get it. Those are the supply side drivers that 0:20:34.760 --> 0:20:38.680 are keeping fertilizer prices at mid cycle level for I 0:20:38.720 --> 0:20:40.840 think much longer than many in the industry would have 0:20:40.880 --> 0:20:44.399 expected when this started in twenty twenty one. 0:20:44.760 --> 0:20:47.080 When you say you can't get it, do you foresee 0:20:47.080 --> 0:20:50.520 a situation where you can't get it at any price? 0:20:50.640 --> 0:20:55.000 Basically, Oh, Tracy, my eCOM professor would roll over and 0:20:55.119 --> 0:20:58.960 is great if I ever said that, But I'll just 0:20:59.080 --> 0:21:02.680 kick it back to you know, applying fertilizer. 0:21:02.800 --> 0:21:05.040 You know, you have to do it when the crop 0:21:05.200 --> 0:21:08.320 wants it. So that's really pre planting and during the 0:21:08.480 --> 0:21:11.600 early emergence of your crop, it's you know, having a 0:21:11.680 --> 0:21:15.520 kid and needing to feed them, you know, vitamins at 0:21:15.560 --> 0:21:18.200 a certain point in there as they start to grow. 0:21:18.440 --> 0:21:20.720 Sorry, everyone knows, after they're three years old, you don't 0:21:20.720 --> 0:21:22.760 have to feed them anymore. They for themselves. 0:21:23.520 --> 0:21:24.280 At that point. 0:21:25.600 --> 0:21:28.199 You're on your own. Go fix me a hot dog. Yeah, So, 0:21:28.760 --> 0:21:32.960 if you miss the UREA application window, it's really difficult 0:21:33.040 --> 0:21:36.560 to go back or nearly impossible to go back and 0:21:36.600 --> 0:21:39.840 apply nitrogen. You just will have to take the yield penalty. 0:21:40.760 --> 0:21:43.600 Yeah, it's interesting. You know, again, just looking at the 0:21:43.640 --> 0:21:46.960 pure urea chart you mentioned, you know, some of the 0:21:47.040 --> 0:21:49.000 legs of the stool have already been kicked out. So 0:21:49.080 --> 0:21:52.359 the lowest it got after the Ukraine invasion of Ukraine 0:21:52.600 --> 0:21:56.000 was still not anywhere close to say pre Ukraine or 0:21:56.040 --> 0:21:59.359 pre pandemic levels at all. So we've shifted into a 0:21:59.440 --> 0:22:04.919 higher rehen generally even before the war in Iran. So 0:22:05.080 --> 0:22:07.840 when we're talking about oil markets, we know that there's 0:22:08.000 --> 0:22:10.760 infrastructure that's already been destroyed. So even if the Straight 0:22:10.800 --> 0:22:13.000 of Horn Moves has opened in a short time, there's 0:22:13.080 --> 0:22:16.160 infrastructure that's been damaged. And of course we know wells 0:22:16.160 --> 0:22:19.119 have been shut in because they're running out of storage 0:22:19.119 --> 0:22:23.040 space for oil. What do we know about the fertilizer 0:22:23.280 --> 0:22:27.119 infrastructure period, you know, the damage that's been done, and 0:22:27.200 --> 0:22:30.280 so like you know, say there's a miracle and suddenly 0:22:30.680 --> 0:22:34.640 things started flowing through the Strait of Horror Moves immediately tomorrow, 0:22:34.640 --> 0:22:37.359 which doesn't seem very likely. What do we know just 0:22:37.359 --> 0:22:39.760 about the condition of the infrastructure and how long it 0:22:39.800 --> 0:22:41.320 would take things to get moving again. 0:22:42.280 --> 0:22:44.639 Yeah, that's a great question. I think we'd be looking 0:22:44.680 --> 0:22:49.160 at least two weeks before you'd start to see fertilizer 0:22:49.200 --> 0:22:53.160 come out along the strait. Again, we haven't seen much 0:22:53.200 --> 0:22:57.080 in the way of these facilities being attacked directly, okay, 0:22:57.240 --> 0:23:00.480 and so a lot of the manufacturing sites have shut 0:23:00.520 --> 0:23:04.920 down preemptively. And so then to restart a fertilizer facility, 0:23:04.960 --> 0:23:07.480