For those folks who don't understand the connection between crop prices and
ultimately the fertilizer business. Explain your thesis as to how what we're
seeing in corn prices and crop prices right now feeds into your bearish
outlook for these fertilizer companies. I mean, basically what happens is if you
have a large crop and he drives corn prices down, what you have it is an
affordability issue because farmers frequently think of these things in
terms of bushels that they're paying. So if the value of the bushel is going
down, then the amount of money they can pay for the fertilizers goes down as
well. And it continues to put pressure on it.
And typically, it also means that low crop prices mean,
you know, high supply, which means the following year we'll typically see a
cotton acreage, potentially see a cut in acreage, which means less fertilizer
demand going forward. So it really it's a cascade of events
that occurs when the price of corn goes down and corn went down because it
looked like a large crop coming in from some data we saw this past week.
And then there was a release today from the USDA that thought that even further,
because it was even more bullish on the scale up from the standpoint of large
crop. Yeah, the Irish if you're looking at
prices. Yeah, just sort of reiterate.
I mean, we did get that was the data. It was interesting.
I mean, the stockpiles are projected to go up.
Looking at a record corn crop harvests this year, at least according to the
USDA. Give us a sense here, though, of how
these companies, if at all, can maybe try to find a way to mitigate that.
So it causes a little bit less damage to profitability and hopefully their share
price. Well, it it's really tough to because
they're purely price takers in the marketplace.
I mean, one potential mitigation is that they cut back production and snug up the
market a bit. But that's pretty difficult considering
these are global markets with global producers.
And simply stepping back from some tonnage would simply just mean we'll
take more imports. So it's really hard to see how they can
really mitigate. They can, you know, cut their costs.
We are a pretty low cost producer across the board and just about all of the
major fertilizer products. So that's the best they can do is if
pricing goes to a low and maybe you get some other people, other countries or
producers dropping out or backing down, you might be able to see some better
pricing or maybe some market share gains on volume.
But it's really tough to mitigate your sort of just part of the process.
And obviously they had no call on what's going on in the crop side.
So that's a weather issue. Yeah, absolutely.
I'm curious if you can broaden this out, too, because anytime we talk about
anything in AG, you kind of have to go outside the U.S.
borders as well, because what happens, of course, Latin America, Asia, Africa,
etc. also has a big impact on what pricing
ends up looking like right here in the United States.
Yeah. Unquestionably.
I mean, the markets you're really focusing on, depending on crops, you're
looking at Brazil and Argentina, you're looking at China and in China and India,
Russia as well, you're not necessarily looking at them as exporters, just
simply suppliers to the market. So if any of them have very large crops,
that again puts it is depressing for pricing.
But by the same token, if there's a weather issue that clearly we wouldn't
see something here in the U.S. that might happen in Brazil or in China
or India, and they have a crop problem that immediately begins to turn around
the situation that we're seeing right now, which is a lot of crop.
And in fact, you know, these global grain stocks to use and stocks going up
for the first time in quite a while. Well, we have about a minute left, but
I'm curious, just longer. Let's look a little bit longer term
here, because when I looked at some of the commentary off a couple of the
contract conference calls, including over a nutrient and a few others, the
executive there still seem to be bullish longer terms, looking at maybe longer
term growth rates for their specific products of maybe 2 to 3 percent year.
And I'm wondering, is there a structural case for them to meet their targets?
Yeah, I mean, the reality is overall long haul food demand grows at about one
and a half to 2 percent a year very, very regularly.
It's pretty unlikely that it moves out of that.
And food demand is going to keep growing.
It's a demographic situation. It doesn't necessarily mean you need
lots more fertilizer to do it, but it certainly can, you know, increases the
amount of a product being being used. And you do have some acreage gains
potential in places like Brazil where they have a lot of land that can go to
agriculture use. That is not today being used.
And obviously that's good for fertilizer because any land they bring in needs
significant fertilization to bring it into production.
So there is some upside the long term. The problem with the pricing is
completely tied to what's going on in the grains.