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Fertilizer
Maker CF Still Bullish as Price Rally Takes a Breather
Elizabeth
Elkin and Jen Skerritt
Thu, November 3, 2022
(Bloomberg) -- Nutrien Ltd. fell the most
ever Thursday while CF Industries Holdings Inc. recovered from an
early slide, after both posted disappointing quarterly earnings driven
by farmers’ reluctance to purchase high-priced fertilizer. The
difference: The outlook for nitrogen demand is better than for potash,
another crop nutrient.
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Shares of Nutrien, the world’s largest
potash producer, fell 14% to C$97.93 in Toronto. CF, the biggest
nitrogen-fertilizer maker, fell as much as 7.5% in New York before
reversing losses to end 2% higher. While potash is critical to crop
yields it can be skipped, unlike more urgently-needed inputs like
nitrogen, according to Bloomberg Intelligence.
Fertilizer prices are falling from the
highest levels seen in years as farmers postpone purchases to await
lower prices, creating gluts that are upending the market for crop
inputs. It’s a reversal from earlier this year when prices surged
after Russia’s invasion of Ukraine threw the world’s crop-nutrient
sector into disarray.
The companies see the price decline as a
short-term issue, and top executives remain bullish on the demand
outlook. CF said Wednesday that supplies are still tight, and the
company doesn’t see much slack in the market despite the localized
gluts.
Conditions that have supported nitrogen
prices for the last year -- chief among them lower operating rates due
to high energy prices in Europe and Asia -- show no signs of abating,
CF Chief Executive Officer Tony Will said in an earnings release.
Executives on a quarterly call said Thursday that while a lot of
farmers are waiting to see if nitrogen prices drop further, they will
need to buy it in 2023.
“We expect the global nitrogen
supply-demand balance to remain tight with attractive margin
opportunities for low-cost producers further into the future,” Will
said.
Weekly wholesale US cornbelt potash
prices and Brazilian spot prices fell to the lowest in more than a
year for the week ending Oct. 28, according to Bloomberg’s Green
Markets.
Nutrien lowered its global potash
shipment forecast due to the impact of “higher-than-expected”
inventory and “cautious buying in North America and Brazil,” during
the second half of 2022, the company said.
Still, Nutrien expects “robust”
agricultural fundamentals will support increased potash use in 2023
and “pent-up demand will emerge” as inventories are drawn down and
prices stabilize, according to the company’s statement. The company’s
plan to increase potash production capacity to 18 million tons by 2025
has not changed, Nutrien CEO Ken Seitz said Thursday on an earnings
call.
“We have to be prudent about expanding
capacity, pacing it with the market,” Seitz said. “We continue to
believe the supply-side challenges are real and there’s going to be a
home for our volumes in the market.”
Nitrogen prices have fallen along with
European gas and suppliers are now reportedly dealing with customers
who are waiting to buy in hopes of even lower prices, Raymond James
Financial Inc. analyst Steve Hansen wrote in a note.
“In potash, specifically, international
buyers have become strikingly emboldened by six months of persistent
price declines, electing to leverage time and defer purchases as long
as possible,” Hansen wrote.
(Updates shares in second paragraph)
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