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Daily Intelligence Briefing

Wednesday, November 10, 2021

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The Daily Intelligence Briefing is published by McAlinden Research Partners. The report is provided to Hedge Connection blog readers once per week for free. Below is just one of the five sections that delivers Change-Driven Investment Themes everyday.


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A deep dive into a market driver with alpha generating potential.

Crop Prices Climb Higher on Intensifying Fertilizer Shortage, China and Russia Limit Exports

Summary: Compounding the USDA’s latest projections for thinner corn and soybean stocks to end the year, fertilizer prices just keep on climbing. Natural gas, a critical feedstock for nitrogen-based fertilizers, is becoming increasingly scarce and costly. That threatens to cut fertilizer output for months to come, resulting in multi-year implications for global crop production.

With Russia and China now curbing their fertilizer exports, fear is beginning to spread throughout agricultural commodity markets. 

Related ETF: Invesco DB Agriculture Fund (DBA)

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US and International Crop Estimates Underwhelming

Corn futures jumped on Tuesday after the US Department of Agriculture (USDA) 
reduced its forecast for 2021-2022 ending stocks by 7 million bushels. That news was apart of the latest World Agricultural Supply and Demand Estimates (WASDE) report.

The biggest surprise was seen in the US soybean crop as production was forecast at 4.42 billion bushels, down 23 million bushels from last month’s report. US 2021/2022 ending stocks are now forecast at 340 million bushels, down 20 million bushels from the October forecast.

Wheat futures also rose as US ending stocks for the 2021/2022 marketing year were expected to remain at their lowest in 14 years.

Brazil’s agricultural outlook has also been underwhelming as of late, largely due to drought and frost throughout 2021, leading to much weaker exports than last year. Per S&P Global Platts, Brazil’s corn exports in the first three business days of November averaged a daily rate of just 149,065 tonnes, compared to 236,631 tonnes per day in the whole of November 2020.

As MRP noted earlier this year, negative weather events also continue to hurt Brazil’s coffee crop and threaten to become more common in the future as a result of climate change. For Brazil’s arabica output in 2022-23, Bloomberg reports production could reach 33.7 million to 38.7 million bags, citing market analysts Judy Ganes and Shawn Hackett. That’s well below the 48.8 million bags collected in the last comparable cycle in 2020-21.

Fertilizer Shortage Has Multi-Year Implications

The world has already witnessed a strong rise in food inflation over the last year, but costs associated with fertilizers may continue boosting prices into the foreseeable future.

As MRP noted last month, fertilizer, a crucial component in corn and other grain production, has been in short supply recently as the industry is the latest to be hit by skyrocketing natural gas prices. Natural gas is used as feedstock for nitrogen fertilizers and typically accounts for 80% of production costs.

In October, Bloomberg reported European fertilizer plants have had to temporarily shut down due to soaring natural gas prices, which are nearly six times as expensive as they were a year prior. Fertilizer output has dropped as much as 40% in the region, per The Wall Street Journal.

DTN Progressive Farmer reports that the average retail price of anhydrous (an ammonia the forms the foundation for all nitrogen fertilizers) set a record this week at $1,113 per ton after increasing 38% from last month. The seven other major fertilizers tracked by DTN for the first week of November saw increases ranging from 9% to 36%.

The Green Markets North American Fertilizer Price Index rose 3% to $1,048 per short ton on Friday, rocketing past an October peak for the index that began in January 2002. Per Bloomberg, comments from Nutrien Ltd. and Mosaic Co.’s earnings calls indicate executives expect fertilizer prices to keep climbing.

Bert Frost, CF Industries’ senior vice president of sales, market development and supply chain, noted last week that fertilizer demand is anticipated to outstrip global supplies well into 2022 or 2023, global grains production likely will suffer. “If this were to happen, demand would be deferred into future years as it would take more than two growing seasons to replenish global grain and oilseed stocks”, he added.

As a result of ongoing imbalances in the fertilizer market, Successful Farmer writes that farmers in the US are likely to plant less corn and use less nitrogen fertilizer on their fields for next year’s growing season.

Fertilizer supplies could get even thinner in coming months, following news that Chinese authorities are imposing new hurdles for fertilizer exporters. That comes amid growing concerns around surging power prices and food production. New rules from the National Development and Reform Commission, China’s top economic planner, call for stable fertilizer supplies and prices.

In a similar move, Gro Intelligence reports Russia will also impose a six-month quota on nitrogen fertilizer exports to safeguard local supplies.

French farm groups said last month nitrogen prices have tripled and there’s a risk of shortages to come. France is the European Union’s top producer of corn, but the nation’s farmers are now being told by gas suppliers to prepare for shortages, use less of the fuel and even postpone collection if possible, growers group AGPM said Wednesday. In Ukraine and the Netherlands, Bloomberg reports the gas rally is also contributing to a slower harvest than last year as electricity costs associated with drying corn and running greenhouses become too expensive.


Skyrocketing natural gas prices have created a new catalyst for agricultural commodities to move higher. As fertilizer companies continue to curtail production, the cost of fertilizer is likely to remain significantly elevated and hamper crop production.

Worse, climate related disruptions are projected to occur more frequently and increase in severity in the years to come, likely contributing to reduced harvests and higher prices.

MRP uses the Invesco DB Agriculture Fund to track our LONG Agricultural Commodities theme, which contains the futures contracts of major crops including, but not limited to, corn, wheat, soybeans, coffee and cotton.

MRP added LONG Agricultural Commodities to our list of themes on April 7, 2021. Since then, the Invesco DB Agriculture Fund has returned 13%, thus far slightly underperforming the S&P 500’s return of 15% over that same period.


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