Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Authoughts podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 1: And I'm Joe. Why isn't thal.
Speaker 2: Joe, if you were a Roman general or a feudal
Speaker 2: lord and you wanted to wage war on your next
Speaker 2: door neighbors, I don't know. This is completely hypothetical.
Speaker 1: Yeah, what time of year?
Speaker 3: Yes?
Speaker 2: Really, what time of year do you think would be
Speaker 2: the best time to actually do it?
Speaker 1: You know, I haven't thought about this before. If I'm
Speaker 1: being totally honest.
Speaker 2: You're not sitting at home thinking about if you were
Speaker 2: a Roman general, not all hours of the day.
Speaker 1: I'm the one guy who doesn't think about stuff like that.
Speaker 1: I don't know much about Rome go on.
Speaker 2: Okay, So for much of human history, if you were
Speaker 2: going to go to war, you would I try to
Speaker 2: avoid certain times of year, and those times were generally
Speaker 2: the spring sewing season and the fall harvest. And there's
Speaker 2: two reasons you would do that. One is because a
Speaker 2: lot of your soldiers are actually farmers. Okay, they're part
Speaker 2: time soldiers, so their day job is farming. And the
Speaker 2: second one is you don't want to completely disrupt your
Speaker 2: food supply.
Speaker 1: Right, that makes a ton of sense. I hadn't thought
Speaker 1: about that, but yes, it makes a ton of sense,
Speaker 1: all right.
Speaker 2: So fast forward to twenty twenty six, and we've clearly
Speaker 2: forgotten much of human history because we have a US
Speaker 2: Israeli war against Iran that is coming at perhaps the
Speaker 2: worst possible time in terms of agriculture.
Speaker 1: You know what, again, I hadn't thought about this at all.
Speaker 1: So I did learn over the last week. You know,
Speaker 1: when I think about the shutdown of the straight up
Speaker 1: mus and so forth, obviously I think oil and energy.
Speaker 1: I have become aware through your writing and others that
Speaker 1: it's also a major choke point thruway for related food stuffs,
Speaker 1: including fertilizer. I had not heard anything about the timing element, however,
Speaker 1: until you just boil it up just now.
Speaker 2: Yeah, So everyone's getting ready for spring planting at the moment,
Speaker 2: So this is precisely when you theoretically would be using
Speaker 2: a lot of fertilizer. And just in the past week
Speaker 2: or so, we've seen prices for urea, which is you know,
Speaker 2: one of the I guess most popular types of fertilizer.
Speaker 2: Those have shot up like twenty five percent. Yeah, It's
Speaker 2: also fascinating to me. I didn't know this, but we
Speaker 2: have all these different types of urea. So you have
Speaker 2: Egyptian granular urea, New Orleans urea. We're going to talk
Speaker 2: about all of it. I've wanted to do a fertilizer
Speaker 2: episode for a long time. I want to talk about
Speaker 2: what's going on with the Moroccan fertilizer industry as well.
Speaker 2: But I am weirdly excited to be talking about urea today.
Speaker 1: I'm looking forward to it.
Speaker 2: Let's do it, all right, and we have the perfect guest.
Speaker 2: We're going to be speaking with Alexis Maxwell. She's an
Speaker 2: analyst on the Bloomberg Intelligence Agriculture team and she's been
Speaker 2: writing a lot about this. So Lexus, thank you so
Speaker 2: much for coming on a.
Speaker 3: Loots Well, thank you for having me.
Speaker 2: Is that framing correct? Is this kind of not a
Speaker 2: great time, slash the worst possible time to be driving
Speaker 2: the price of fertilizer up?
Speaker 3: Yeah, definitely. I couldn't think of a worse time to
Speaker 3: have a supply side shock and resulting surge and fertilizer
Speaker 3: prices for farmers. Effectively, just about everywhere, the second quarter
Speaker 3: is the timeline when the Northern Hemisphere starts their planting season.
Speaker 4: What is your real Yeah, so, urea is the.
Speaker 3: Most commonly used form of nitrogen. Crops are going to
Speaker 3: demand a variety of fertilizers, but the big three that
Speaker 3: you have to use are going to be your nitrogen, phosphate,
Speaker 3: and potash. And in the industry we call it your npks.
Speaker 3: Urea is a form of nitrogen. I think about this
Speaker 3: like a step ladder. If you want urea, the way
Speaker 3: that you get it is by starting first with natural gas,
Speaker 3: you crack it into ammonia, and then you run another
Speaker 3: chemical conversion on it and you turn it into a
Speaker 3: granular product that is easy to apply, easy to transport,
Speaker 3: and is about forty six percent nitrogen. And for those
Speaker 3: of you who've never applied fertilizer or planted crops, you
Speaker 3: probably bought some flowers at some point in your life
Speaker 3: and you get a little packet that has some like
Speaker 3: white crystals in it. Yeah, you're going to have yourria
Speaker 3: in there to your flowers were out.
Speaker 2: I don't know that that's interesting. Okay, So one thing
Speaker 2: I know about fertilizer other than most of it smells
Speaker 2: pretty bad. But you always hear this thing about the
Speaker 2: haber Bosch process and how the guy who basically, I
Speaker 2: guess invented the way we get fertilizer nowadays is responsible
Speaker 2: both for a massive boom in the human population because
Speaker 2: everyone gets to eat more, but also responsible for a
Speaker 2: lot of death at the same time. Can you talk
Speaker 2: about that, I guess the origins of all of this.
Speaker 3: Yeah, I think I'll call it one of the greatest
Speaker 3: paradoxes of humanity, you know, Tracy, I can't think of
Speaker 3: an invention that, on one hand is more responsible for
Speaker 3: billions of lives but also at the same time generates
Speaker 3: a product that is used as a weapon of war.
Speaker 3: I think some people will tell you, you know, with
Speaker 3: the global population just over seven billion, about half of
Speaker 3: the people on the Earth today are here because of
Speaker 3: conventional fertilizers. If we were to, let's just say tomorrow,
Speaker 3: stop using conventional fertilizer, and we converted everything back to
Speaker 3: organic and we formed every single acre of arable land
Speaker 3: out there, they say that the Earth could really only
Speaker 3: support a population of about four billion people. So conventional
Speaker 3: fertilizer is I think the most important invention to the
Speaker 3: most number of people on this planet.
Speaker 1: Okay, explain to me. So urea comes from its downstream
Speaker 1: from natural gas, and so explain to me, like what happens,
Speaker 1: Like why not ship the gas? I mean, right now
Speaker 1: nothing is shipping or very little is moving through the street.
Speaker 1: But why is the process such that the first step,
Speaker 1: the transformation of natural gas to urea, happens at the
Speaker 1: source rather than later down somewhere else on the supply chain.
Speaker 3: Yeah, so you'll find nitrogen fertilizer plants will often be
Speaker 3: co located with natural gas because to ship natural gas
Speaker 3: you have to chill it to very low temperatures and
Speaker 3: it's very expensive to move it. In contrast, urea is
Speaker 3: it's a granular. You can ship it in a as
Speaker 3: a bulk commodity item. It's much cheaper to do it
Speaker 3: that way, and you can reach a vast number of people.
Speaker 3: You'll find UREA plants around the world, but most of
Speaker 3: them are really located in places with low gas because
Speaker 3: this is a competitive commodity industry. So you'll see these
Speaker 3: plants in places like Russia, the Middle East, the United States,
Speaker 3: and China.
Speaker 1: Yeah, it reminds me a little bit of like aluminum,
Speaker 1: Like here is this thing that it's like Okay, you
Speaker 1: could ship it anywhere in the world. It's a lot
Speaker 1: easier to ship aluminum than it is to transport electricity
Speaker 1: via batteries. So you have the aluminum processing co located
Speaker 1: where you have cheap electricity, and then of course it's
Speaker 1: sort of trivial to move it elsewhere. How much of
Speaker 1: the world's urea is in conflict affected regions right now?
Speaker 3: I just want to add one thing too about the
Speaker 3: urea and why we ship it. It has a very
Speaker 3: strong seasonality. So you know, when you run a large
Speaker 3: chemical manufacturing plant, you want to capture the economies of scale,
Speaker 3: and you want to run your plant three hundred and
Speaker 3: sixty five days a year. But the problem that we
Speaker 3: see in the fertilizer industry is that farmers only demand
Speaker 3: urea a very short period of the year, let's just say,
Speaker 3: like two months of the year. So that puts these
Speaker 3: manufacturers in its sort of classic snake and egg supply
Speaker 3: chain problem. What do you do with the material the
Speaker 3: rest of the year. So it's much easier to ship
Speaker 3: it out than it is to store it and keep
Speaker 3: it on hand for farmers ten months out and to
Speaker 3: take that price risk.
Speaker 2: Oh wait, now, I'm really interested how storable is UIA actually,
Speaker 2: because I think about those little packets. They seem like
Speaker 2: they could last for quite a while.
Speaker 3: So while yeah, if you have urea and you can
Speaker 3: put it in a warehouse and you can have it
Speaker 3: covered from the rain and possibly other elements, you can
Speaker 3: probably keep it on hand for at least a couple
Speaker 3: of months, probably three, four or five months. However, you know,
Speaker 3: if you have a warehouse, the way that you really
Speaker 3: maximize the value of a warehouse is by turning the
Speaker 3: inventory in your warehouse and selling that. So when you
Speaker 3: put urea in a warehouse, your takeoking on price risk
Speaker 3: over the period that since that it will sit in
Speaker 3: storage and you're not using your warehouse for what it's
Speaker 3: really designed for. So a lot of what we see
Speaker 3: with these UREA facilities it's making ship. There isn't a
Speaker 3: strategic reserve of urea the same way that we would
Speaker 3: have it like in oil for example, which is partially
Speaker 3: why this crisis is really compounding for urea at this
Speaker 3: time of year. We don't have significant storage to replace
Speaker 3: what we're losing in the Middle East. Now the Middle East,
Speaker 3: if we look at the countries that are located along
Speaker 3: the Persian Gulf. About forty five percent of the world's
Speaker 3: tradable urea comes from the Middle East, and about about
Speaker 3: twenty percent of the ammonia comes from along the Middle
Speaker 3: East as well. So if you are in the business
Speaker 3: of trying to procure a replacement for what we've lost
Speaker 3: in the Middle East, there's not really a good next
Speaker 3: best alternative at this point in time. You could try
Speaker 3: going to Russia to procure material, but a lot of
Speaker 3: the West has sanctioned Russia and their fertilizer products. You
Speaker 3: could try going to China, but China has an export
Speaker 3: band currently on their urea fertilizers and that's done to
Speaker 3: protect their domestic industry and their farmers, and that really
Speaker 3: kind of leaves you left over with places like Egypt
Speaker 3: or maybe the United States.
Speaker 1: So is most of the eurea from the Middle East
Speaker 1: does most of it going to Asia?
Speaker 3: So the Middle East is a great supplier for urea.
Speaker 3: They ship effectively everywhere every single day they're in the market,
Speaker 3: you know, a urea plant in the Middle East, just
Speaker 3: to keep their inventory sort of in balance. A lot
Speaker 3: of these producers are loading one vessel and shipping it
Speaker 3: every single day, and so where the shipments go from
Speaker 3: the Middle East depends on what time of year it is.
Speaker 3: So when farmers are demanding product, like European farmers or
Speaker 3: American farmers, in the second quarter, you'll see more of
Speaker 3: the Middle Eastern EUREA go there. But in the second
Speaker 3: half of the year, you're going to see a lot
Speaker 3: more of the UREA move to places like India and Brazil,
Speaker 3: places that have a flipped season, to the northern Hemisphere
Speaker 3: and plant at a different time.
Speaker 2: Okay, this is my chance. What's the deal with fertilizer
Speaker 2: in Morocco? Because I remember when I was in Abu Dhabi,
Speaker 2: there were a lot of you know, big national companies
Speaker 2: that were very excited about striking some sort of fertilizer
Speaker 2: deals with Morocco. What's going on there?
Speaker 3: Yeah, So Morocco is among the world's one of the
Speaker 3: world's largest producers of phosphate. So phosphate is one of
Speaker 3: those critical NPK nutrients. Morocco is expanding their phosphate production
Speaker 3: and their low cost and because of their location in Africa,
Speaker 3: it's relatively cheap freight to get it to move around
Speaker 3: the world. I think of phosphate to the Moroccan economy
Speaker 3: a little bit like oil to the Saudi economy.
Speaker 1: So if I'm looking at a ten year chart of
Speaker 1: back to Egyptian but Egyptian urea prices, they soared to
Speaker 1: over eleven hundred dollars a metric ton in the wake
Speaker 1: of Russia's invasion of Ukraine. That peak looks like around
Speaker 1: spring April twenty twenty two they got down to about
Speaker 1: a little under a three hundred dollars a metric ton,
Speaker 1: and twenty twenty four they're close to six hundred. Now,
Speaker 1: before we get to the effects of what's six hundred
Speaker 1: a ton urea? What the impact of that is, What
Speaker 1: was the impact on the twenty twenty two price bike,
Speaker 1: What were the domino effect of that massive serve?
Speaker 3: Yes, the twenty twenty two price surge was really two
Speaker 3: supply side shocks. In twenty twenty one, China started their
Speaker 3: export ban on urea and phosphate fertilizers, and the importance
Speaker 3: of China to the fertilizer market they really it cannot
Speaker 3: be overstated. So China is the marginal producer for urea
Speaker 3: and phosphate. So generally speaking, when China is exporting fertilizers
Speaker 3: prices globally will tend to fall, and when China is
Speaker 3: out of the market, prices rise to the next level
Speaker 3: of production costs. And so in September of twenty twenty one,
Speaker 3: when China slammed the door on exports, the world had
Speaker 3: to really scrambled for alternatives to supply. And then when
Speaker 3: we had the Russian invasion into Ukraine in the first
Speaker 3: quarter of twenty twenty two, we saw fertilizer prices spike
Speaker 3: on top of that because the world was unclear about
Speaker 3: how we could source fertilizers from Russia. So Russia is
Speaker 3: a high volume exporter, they're a low cost producer, and
Speaker 3: Russia also is probably really the only country that will
Speaker 3: do high volume exports of nitrogen, phosphate and potash. You
Speaker 3: name the flavor of fertilizer that you want, you can
Speaker 3: get it out of Russia. And so there was just
Speaker 3: this general surge in the industry to try to find
Speaker 3: an alternative, you know, And I mentioned earlier that when
Speaker 3: we took China out of the market, fertilizer prices had
Speaker 3: to go above the marginal producer level production costs in
Speaker 3: China and did in New supply and the way that
Speaker 3: the nitrogen cost curve is oriented. That meant the world
Speaker 3: had to go to Europe to find new sources of
Speaker 3: nitrogen and turn those plants on in order to meet demand. Well,
Speaker 3: at the time, the price for natural gas in Europe,
Speaker 3: which is the feedstock for ammonia and then eventually urea,
Speaker 3: was surging over sixty dollars per mmbtu, And so if
Speaker 3: you wanted to run the economics of what it costs
Speaker 3: to make ammonia, it's a very easy back of a
Speaker 3: napkin math to do this. It takes about thirty four
Speaker 3: to thirty six mmbtus of natural gas to produce one
Speaker 3: ton of ammonia. But if we needed thirty six mmbtus
Speaker 3: to make ammonia and I'm paying sixty dollars for natural gas,
Speaker 3: I'm looking at an ammonia price that's over twenty one
Speaker 3: hundred dollars.
Speaker 2: So if I'm a farmer in the US right now
Speaker 2: and I'm getting ready to plant spring weeds, what am
Speaker 2: I doing when I you know, I'm hopefully I have
Speaker 2: a Bloomberg terminal That would be nice as a farmer,
Speaker 2: But I'm looking at the chart of the price spike
Speaker 2: in something like UREA. What am I thinking to myself
Speaker 2: in terms of offsetting this cost?
Speaker 3: Yeah, so farmers will have probably four options or decisions
Speaker 3: that they can make at this point. And I will
Speaker 3: tell you I do think that US farmers are probably
Speaker 3: best poised to whether this storm compared to farmers in
Speaker 3: let's say, the European Union or India. At this point,
Speaker 3: if you're a farmer, what you can choose to do
Speaker 3: is you can reduce your application rates. You can switch
Speaker 3: what you're planting, let's say, from corn, to shift into soetins,
Speaker 3: which demands significantly less amounts of nitrogen. The third option is,
Speaker 3: as a US farmer, you can switch among your nitrogen products.
Speaker 3: And then the last worst option is just not plant
Speaker 3: at all.
Speaker 1: And what do you see happening right now? There was
Speaker 1: a headline, by the way earlier that I saw. We're
Speaker 1: already senators in DC are hearing from farmers talking about
Speaker 1: wanting to get relieved from wanting to get some sort
Speaker 1: of bailout. It's not as extreme, but you know, the
Speaker 1: price is to some extent global, and so we see
Speaker 1: the New Orleans price that's shooting up too, that's at
Speaker 1: five hundred and seventy five hundred and seventy pounds a time.
Speaker 3: Yeah, so this is really all you know as in economics,
Speaker 3: this is all really relative. So I want to just
Speaker 3: give some context as to why even though you know,
Speaker 3: Egypt urea is I think today close to seven hundred
Speaker 3: dollars still below about one third below the twenty two
Speaker 3: price spike, what's happening now is probably the worst it's
Speaker 3: ever been for farmers looking to buy nitrogen. And we
Speaker 3: measure that in the industry by just looking at the
Speaker 3: urea price to the crop price ratio.
Speaker 1: Oh that makes sense, and yeah.
Speaker 3: It's all relative. You know that less incremental ton of
Speaker 3: nitrogen is going to give you a yield bump, So
Speaker 3: you kind of you want to run the economics and
Speaker 3: the agronomy on if I spend a little bit more
Speaker 3: on my nitrogen, am I going to get that yield bump?
Speaker 3: So I need to know what the price of the
Speaker 3: commodity is. And if I were today to look at
Speaker 3: the urea to corn price ratio, yeah, week it was
Speaker 3: that one twenty four. The highest it's ever been is
Speaker 3: one forty three. And with the price surge that we're
Speaker 3: seeing again, this week. I expect once we have prices
Speaker 3: settle on Friday, that will set a new record for
Speaker 3: the most expensive that Urea has ever been to a
Speaker 3: porn farmer.
Speaker 1: Tracy. This is going to make a good chart in
Speaker 1: the newsletter because I just charted it as as our
Speaker 1: guest was talking about it. And yes, we are very
Speaker 1: close to this. So even though on the pure yourrea
Speaker 1: price not necessarily at all time highs, but relative to
Speaker 1: chorn we are very close to all the time highs there. Yeah,
Speaker 1: I think this is important.
Speaker 2: So the other thing I wanted to ask is you
Speaker 2: you've heard I mean, it's a running joke on the
Speaker 2: show that farmers are always complaining about something, But one
Speaker 2: of the things they've complained about is fertilizer prices. Even
Speaker 2: before you know the Iran situation, even before the twenty
Speaker 2: twenty two price spike, there's been some grumbling what's going
Speaker 2: on in the structure of the market that aims to
Speaker 2: make fertilizer prices an issue for the farming industry.
Speaker 3: Yeah, So the farming industry in the US right now
Speaker 3: is margins are incredibly thin. If we look at like,
Speaker 3: for example, the difference between what farmers pay for their
Speaker 3: inputs versus the prices that they get for their agriculture products.
Speaker 3: It hit a record negative spread in January. There's a
Speaker 3: lot of price pain out there in the US farm economy,
Speaker 3: and we're seeing Chapter twelve bankruptcies. Chapter twelve is a
Speaker 3: specialized form of bankruptcy for farms and fisheries starting to
Speaker 3: pick up here in twenty twenty five. So I'll say
Speaker 3: the economic pain is real. And if you look at
Speaker 3: fertilizer prices, they tend to cycle, just like all other commodities.
Speaker 3: The last time we really saw an amplified price cycle
Speaker 3: for fertilizer was seven and eight, kind of in line
Speaker 3: with the financial crisis. But what makes this difference is
Speaker 3: in contrast to I think it was a more of
Speaker 3: a demand cycle in No. Seven and eight that caused
Speaker 3: the amplification. But this time this is a supply side crisis.
Speaker 3: You know. I think about this as like a three
Speaker 3: legged stool. We've taken China out of the market, Russian
Speaker 3: supply seemed difficult to acquire, and now you throw in
Speaker 3: we have this global choke point for urea. In the
Speaker 3: straight up horror moves, we're almost let's say, you know,
Speaker 3: forty percent of the nitrogen that we need is you
Speaker 3: can't get it. Those are the supply side drivers that
Speaker 3: are keeping fertilizer prices at mid cycle level for I
Speaker 3: think much longer than many in the industry would have
Speaker 3: expected when this started in twenty twenty one.
Speaker 2: When you say you can't get it, do you foresee
Speaker 2: a situation where you can't get it at any price?
Speaker 5: Basically, Oh, Tracy, my eCOM professor would roll over and
Speaker 5: is great if I ever said that, But I'll just
Speaker 5: kick it back to you know, applying fertilizer.
Speaker 3: You know, you have to do it when the crop
Speaker 3: wants it. So that's really pre planting and during the
Speaker 3: early emergence of your crop, it's you know, having a
Speaker 3: kid and needing to feed them, you know, vitamins at
Speaker 3: a certain point in there as they start to grow.
Speaker 2: Sorry, everyone knows, after they're three years old, you don't
Speaker 2: have to feed them anymore. They for themselves.
Speaker 1: At that point.
Speaker 3: You're on your own. Go fix me a hot dog. Yeah, So,
Speaker 3: if you miss the UREA application window, it's really difficult
Speaker 3: to go back or nearly impossible to go back and
Speaker 3: apply nitrogen. You just will have to take the yield penalty.
Speaker 1: Yeah, it's interesting. You know, again, just looking at the
Speaker 1: pure urea chart you mentioned, you know, some of the
Speaker 1: legs of the stool have already been kicked out. So
Speaker 1: the lowest it got after the Ukraine invasion of Ukraine
Speaker 1: was still not anywhere close to say pre Ukraine or
Speaker 1: pre pandemic levels at all. So we've shifted into a
Speaker 1: higher rehen generally even before the war in Iran. So
Speaker 1: when we're talking about oil markets, we know that there's
Speaker 1: infrastructure that's already been destroyed. So even if the Straight
Speaker 1: of Horn Moves has opened in a short time, there's
Speaker 1: infrastructure that's been damaged. And of course we know wells
Speaker 1: have been shut in because they're running out of storage
Speaker 1: space for oil. What do we know about the fertilizer
Speaker 1: infrastructure period, you know, the damage that's been done, and
Speaker 1: so like you know, say there's a miracle and suddenly
Speaker 1: things started flowing through the Strait of Horror Moves immediately tomorrow,
Speaker 1: which doesn't seem very likely. What do we know just
Speaker 1: about the condition of the infrastructure and how long it
Speaker 1: would take things to get moving again.
Speaker 3: Yeah, that's a great question. I think we'd be looking
Speaker 3: at least two weeks before you'd start to see fertilizer
Speaker 3: come out along the strait. Again, we haven't seen much
Speaker 3: in the way of these facilities being attacked directly, okay,
Speaker 3: and so a lot of the manufacturing sites have shut
Speaker 3: down preemptively. And so then to restart a fertilizer facility,
Speaker 3: it's going to take two or three days of a
Speaker 3: natural gas burn just to get the plant to where
Speaker 3: it is producing urea again. And then you have to
Speaker 3: load of you have to bring a vessel in, you
Speaker 3: have to load the vessel, you have to get it
Speaker 3: back out. And nobody at this point has any clarity
Speaker 3: on when the strait reopens who gets first priority? Is
Speaker 3: it oil or is it fertilizer. I'm just going to
Speaker 3: guess oil we'll get the priority. So you know, once
Speaker 3: this has a clear end date, at least two to
Speaker 3: three weeks before we see fertilizer come back out of
Speaker 3: the molas.
Speaker 2: So obviously everything is still in flux. And I should
Speaker 2: just add our standard disclaimer, which is where recording this
Speaker 2: on March tenth, and who knows what will happen by
Speaker 2: the time this episode comes out, But how do you
Speaker 2: anticipate this actually feeding into food prices. I mean, this
Speaker 2: is the big question. So people use less fertilizer, you
Speaker 2: get lower yields, Supply goes down, I assume prices go up.
Speaker 2: Or you have farmers that continue to use fertilizer but
Speaker 2: it costs them a lot more and so they have
Speaker 2: to offset it with higher prices, and prices still go up.
Speaker 3: Yeah, I'll think about this in sort of a timeframe
Speaker 3: of when we might start to see some of this
Speaker 3: flow through the system. It's the relationship between fertilizer prices
Speaker 3: and when that piece of food arrives on your dinner plate.
Speaker 3: There's a lot of decisions and price inputs to how
Speaker 3: that all works. But so what we're thinking right now
Speaker 3: is we'll see that. In fact, the market's calling for
Speaker 3: a reduction of nitrogen application rates here in the US,
Speaker 3: and so I'm looking at what I might expect for
Speaker 3: US cornyields to be this year. Last year we had
Speaker 3: a yield of one hundred and eighty six bushels per acre.
Speaker 3: I'm thinking at this point that we could see the
Speaker 3: US corniold be one hundred and eighty two bushels. But again,
Speaker 3: we still have a long road of production potential ahead
Speaker 3: of us. A lot of the cornield depends on what
Speaker 3: the weather looks like during the summer season, how soon
Speaker 3: farmers can get out there and plant. And then also,
Speaker 3: you know the thing about commodity prices is they'll snap
Speaker 3: up and then at these levels, you know I mentioned earlier,
Speaker 3: this is a record. We are expecting to see a
Speaker 3: record urea a corn price ratio that will destroy a
Speaker 3: lot of urea demand. And so if the straight reopened
Speaker 3: next week, you know you would see urea price is
Speaker 3: sort of snap back to before. Maybe you would see
Speaker 3: them snap back to where they were before this war.
Speaker 3: So thinking about like food production and the relationship with this.
Speaker 3: So we're planting now in the spring, I'm expecting lower
Speaker 3: yields for corn. For example, that corn isn't going to
Speaker 3: get harvested until probably about September or October of this year,
Speaker 3: and then it'll have to move to let's say a
Speaker 3: milling location or an ethanol plant. Lower yields is going
Speaker 3: to be something that will move through the food production
Speaker 3: system over a timespan of about a year or two.
Speaker 2: All right, Alexis, thank you so much for coming on
Speaker 2: a blots and finally letting us talk fertilizer. I wish
Speaker 2: it was under better circumstances, but this was absolutely fascinating.
Speaker 3: Thank you well, thank you.
Speaker 4: For having me with my pleasure, Joe.
Speaker 2: I'm never going to look at one of those little
Speaker 2: packets that comes with flowers fresh flowers the same way.
Speaker 1: Again, No, I I could. I never used this. I no,
Speaker 1: maybe I put them in the water. I had no idea,
Speaker 1: but no, that was super interesting. And the sort of
Speaker 1: the money chart for me was really seeing that Urea
Speaker 1: to corn futures ratio, which is very clean and very elegant,
Speaker 1: and you can just see farmers are how much stress
Speaker 1: they're already feeling and then how much additional stress they're
Speaker 1: seeing just in the last weeks. But there haven't really
Speaker 1: been good conditions for fertilizer costs really since the pandemic.
Speaker 1: It has seemed like, in particular since the war in
Speaker 1: Ukraine started this structural shift in supply.
Speaker 2: Yeah, so there are a few things that stood out
Speaker 2: to me. So Number one, tough times for farmers, and
Speaker 2: it seems like in all these instances, the pain usually
Speaker 2: falls on the smaller scale farmers versus the big ones.
Speaker 2: I imagine in this particular situation, if you're a huge
Speaker 2: farmer out in Iowa or wherever, you probably have enough
Speaker 2: scale to ensure that you're still getting some sort of fertilizer. Yeah,
Speaker 2: those business relationships are going to help you, is say
Speaker 2: a small scale farmer who's like making these decisions on
Speaker 2: an individual basis. The other thing that stood out to me,
Speaker 2: and we've heard this before in our oil discussion with
Speaker 2: Rory Johnston, this idea that well, again, the big fare better,
Speaker 2: so the US is probably going to make it out
Speaker 2: better than say in India, which needs gnat gas from
Speaker 2: the Middle East in order to make its own fertilizer.
Speaker 2: And then the other thing that stood out to me
Speaker 2: was that idea of storage. So we know that in commodities,
Speaker 2: storing something can cost a lot of money, and it
Speaker 2: seems like fertilizer in particular hasn't really been stored in
Speaker 2: the way maybe some other metals have been, because you know,
Speaker 2: most of the time you only need it, I guess
Speaker 2: twice a year, you know, once in the southern hemisphere
Speaker 2: and once in the northern hemisphere.
Speaker 1: Yeah, it does not seem as though the supply chain
Speaker 1: has been optimized for sort of long term accumulation. There
Speaker 1: aren't strategic urea reserves the way there are with other
Speaker 1: commodity reserves. It's really going to be a mess. And
Speaker 1: you know that was when we talked to Rory Johnston
Speaker 1: about energy. And you know again in the US, it's
Speaker 1: going to show up mostly at higher prices than the
Speaker 1: pump elsewhere. It's going to show up as literally an
Speaker 1: unavailability of reduction in the amount of energy, the amount
Speaker 1: of oil that's capable. It's really disturbing to think, like, yeah,
Speaker 1: I mean, no one wants to pay higher groceries, but
Speaker 1: it's a lot better than outright family, which is the
Speaker 1: risk when you do such a massive shock to the
Speaker 1: food supplant.
Speaker 2: Yeah, all right, shall we leave it there.
Speaker 1: Let's leave it there.
Speaker 2: This has been another episode of the aud Bots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway
Speaker 2: and I'm Joe Wisenthal.
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