INSIGHT: As US harvest season approaches, fertilizer markets look toward upcoming USDA acreage revision

Author: Mark Milam


HOUSTON (ICIS)--As the fields of US corn and soybean crops inch toward harvest, farmers along with fertilizer market players move on from an extremely challenging spring season, attention is now being fixed on the recalculation of planted acres due on 12 August.

At stake is whether a huge amount of corn was left out of the ground this year and the influence of that on the level of fertilizer consumption over the rest of 2019, as well as whether this could stoke some renewed recovery in demand and acreage commitments heading into next year.

The update from the US Department of Agriculture (USDA), which is being undertaken in 14 key crop states. The reassessment was prompted by unusual levels of spring season flooding, prompting fresh acreage surveys.

The measures will not be a full picture of the current crops or their yield potential but should give a clearer answer as to how many prevented plantings have occurred.

Prevented planting is the term for failure to plant an insured crop by the final designated planting date, often due to extreme weather conditions.

It will give both crop commodity markets and the fertilizer industry a new factor to ponder, with sentiment mixed on how the revised estimate will land. The measures could either boost falling fertilizer demand, push crop prices higher or set the stage for another record corn crop in 2020.

If it does not contain the revisions some anticipate, those positive outcomes could quickly turn negative and add further downward pressure.

“Everyone is waiting on this report, and has, it seems, put their hopes and dreams all into this and I am not sure if it is going to be a life-saver,” said a buyer. “There is a lot of eggs going into this basket and if the update is not pushing corn up then it could drive this down even more.”

Some in the fertilizer segment are cautious about there being an overreaction to the updated findings.

A seller said, “My expectation is that it will take USDA a while to get there though. They will follow normal procedures but will not get all the data from the Farm Service Agency [FSA] which tracks prevent plant until November.”

“Without the complete FSA data they will be cautious and my belief is they will lower acres but will not get to the 86 million [analyst projected] figure next week and likely not until November or December.”

While market certainty is high that there were indeed fewer corn sowings this year there are similar expectations that the other major cash crop of soybeans has suffered a similar sharp decline.

USDA - June Acreage report 91.7m
Agricultural analysts projections 86-89m
Fertilizer industry participants outlook 84-86m
USDA - June Acreage report 80m
Agricultural analysts projections 75-77m
Fertilizer industry participants outlook 74-76m

Some think there is also the possibility that, due to the limitations in USDA surveying methods and variations in actual spring conditions, that perhaps more crops were planted than once thought, especially given the requirements of sowings to be eligible for government assistance.

As one market source said, “I’ve heard stories of long drives revealing field after field of corn which leads me to believe that more corn got planted than soybeans. I’ve also head stories of flooded fields and busted grain bins.”

“These stories lead me to believe that more corn got planted than the market thinks at present.  And, as tough or bad as this spring was, it’ll probably be OK as it will be really good in some areas and really bad in other areas. Hardship seems a more alluring story line than prosperity this year but, it may not be accurate.”

Major US producers have also weighed on the issue during the recent earnings season with Mosaic saying that as a result of the wet conditions and delayed sowings that US farmers were prevented from planting at least 10m acres of crops.

Fellow producer Nutrien has estimated there was more than 10m acres that went unplanted but despite the drop in sowings, while CF Industries is projecting there is around 85m corn acres this year, and further noted its concern that the late planting will lead to lower yields.

Eager to see a return to more typical patterns, producers are projecting a positive return for market fundamentals given that crop prices have climbed further since the spring and with nutrient deficiencies have increased over the skipped fall and limited spring periods, the need to address soil fertility is essential.

“The North American crop, which received much less fertilizer than usual, will leave fields in serious need of nutrient replenishment. At the same time, higher grain prices will provide strong incentives for farmers to plant more acres and to maximise yields next spring,” said Joc O’Rourke, Mosaic CEO.

“So if we bridge from 2019 to 2020 we expect to have higher acreage and we expect to have higher application to support that and then the rest of the world will follow.”

Mosaic has heard discussions over corn plantings being around 95m acres in 2020.

It is a figure that is pleasing to many in fertilizers given the tough spell that has been underway since the end of the 2018 harvest and experienced by many.

A trader said, “I believe the corn fundamentals do support higher prices and corn should be economically favourable over soybeans in the US next year. This would support 93-95-plus million acres of corn next year which is positive for fertilizers.”

"Corn requires more fertilization than either soybeans or wheat does, hinting at more bullish  so it does leave you optimistic about the prospects for 2020. It will certainly be interesting to watch this unfold and 2019 is a year we will be talking about for a long time.”

So far this summer the uncertainty over the amount of inputs consumed or deferred, and the eventual acreage sowed and the yield it produces have weighed on the market, especially for domestic urea values which have swayed up and down.

Whether the latest USDA estimation soothes the lack of conviction is not a given but could certainly highlight the potential path that both the agricultural and fertilizer markets are heading in the near-term.

By Mark Milam.