The Fertilizer Shock Hitting Farms During Planting Season | Josh Linville

30% of the global nitrogen-based fertilizers are coming from the Strait of Hormuz and the supply has been disrupted. Even the gas, which is a starting material for a lot of other makers of these kind of fertilizers is getting disrupted. A lot of them are coming from the Strait of Hormuz. On top of it, China has put a ban of exports on fertilizers. Today, we sit down with Joshua Linwell, who's an industry expert. He's observing all of this and he's gonna tell us what's happening in the fertilizer market and can this impact food supplies and create a food crisis globally. I'm Siamak and this is Market Insider. Can you tell us what's happening right now? Every headline out there is talking about the gas impacts, the oil impacts, because again, those are the markets people know. Those are the markets that are active. They're liquid that everybody's in. Those are the popular headlines that everybody wants to watch. In the back end, fertilizer has always been a major part of that part of the world. And in fact, when we look at it nitrogen-wise, about a third of the world's urea flows through the Strait of Hormuz. The third largest phosphate exporter sends their products through the Strait of Hormuz. And while we might all focus on oil and gas and things like that, those aren't things that you can eat. And now all of a sudden, the world is quickly starting to find out just how important this corridor is in fertilizer because at the end of the day, without fertilizer, we're not growing the crop and we have a significantly bigger humanitarian issue at the end of this thing. So it's, yeah, I've been joking with people. Fertilizer is getting its 15 minutes of fame right now. It better soak up every possible minute it has. Has the production shut down? Is there a lot of production out there? Can you explain to us what products are out there and what's happening with them? Yeah, so on the nitrogen side, three of the top 10 global leading exporters of urea and anhydrous sit in the Persian Gulf. Those three countries are Saudi Arabia, Qatar, and Iran. And so, or Iran, it depends on the audience. I'm from the Midwest. I'm going to speak at Iran. And so you look at this, and in the first several days after the Strait shut down, we weren't terribly concerned. There was a massive price spike in the markets, but we were saying if the Strait can reopen, the damage is going to be limited. The plants don't have to shut down. They're still running. We get the vessels moving again. We can make this up in short order. By about day four and five, we move beyond that because all of a sudden now with the vessels moving, there's nowhere to go with the oil. Storage started to get filled. Gas and oil production started to slow down, started to stop. Well, same thing for the nitrogen fertilizer production. All of a sudden, they stopped getting their inputs and they had to start slowing down. There's storage. It's a finite asset. There's only so much room to put this product and without those vessels coming and going, that's starting to get filled up. They now started to shut down. And now we're going on at least a week plus for these facilities being down substantially for normal levels. We are taking massive volumes that should have been in the marketplace. We're taking them off right now. And there has been pressure on this products already, right? Can you tell us what does the supply look like globally before and after this conflict? Yeah, so the Friday before, we were already dealing with a couple of big issues. The first was China. China on the nitrogen side, on urea side, is typically the second or third largest exporter in the world. Somewhere between five and five and a half million tons per year. The issue there is that since the start of the Russian invasion of Ukraine, the Chinese government looked at the global fertilizer situation, understood that they are a big net exporter and decided, hey, wait a minute, we're going to step in. My big kind of fundamental point of view is that for a communist government, the biggest danger to that government is not an outside power. It's not capitalism. It's an uprising by its own people. And so when you look at the Chinese population, about 25% of that population is tied to ag in one way or another. So how do you make the people happy? Well, you make sure they're in a good spot. So what they did is they stepped in and they said, we are going to start restricting the export of these fertilizers. Second biggest on the urea, the biggest on the phosphate. And in doing so, they kept domestic supplies more than sufficient and they kept the domestic price lower than the rest of the world. They just made one out of every four people happy by making sure they're in a better position than the rest of the world on these two products. So as we looked into 2026, the estimate was that they would not come back into the marketplace based on some of their commentary and everything else. They weren't going to export until August. So second, third largest exporter gone until at least August. The other side of it is Europe just as a whole. You remember back in late 2021, before the Russian invasion of Ukraine even began, Europe was getting into it with Russia about the Nord Stream 2 pipeline. Europe didn't want the gas. Russia wanted to send them the gas. Ultimately it came to a head and they shut down the pipeline. They shut down the flows. And then somebody came in afterwards and made sure that you wouldn't find agreement and they blew up those pipes underwater. European gas values skyrocketed and their nitrogen production rates have never recovered. They are operating at about 75% of normal, which removes about three and a half plus million tons of urea production per year. That was before the attack. Immediately after the attack, we take three of the biggest exporters of urea and anhydrous off the table because they can't flow their products through the Strait of Hormuz. And now as we're getting ready for the second week anniversary of the attacks, now we got to start looking further down the stream. Now we're talking about gas vessels, not able to flow either. Now you're starting to talk about other manufacturers having to scale back their production because they can't get the gas. And what I'm talking about is India. One of the largest urea producers in the world having to slow down their production. That might bring them back into buy sooner. Pakistan, big producer, they're losing gas. They can't produce. It doesn't even begin to touch on Israel slowing their gas production because they fear Iran attacking them, attacking their gas supplies. So they've shut it down. Well, Egypt, their nitrogen production relies on that. So now all of a sudden we started with a, we can make it up quickly if it's a few days, to we're losing some real production, but at least it's just these three. And now the tentacles of the story are starting to reach out. And all these other markets that feed into that fertilizer production, now those are starting to have an impact. And that's why we're seeing prices up and to the right, nearly every day. And has the prices gone up to the record high yet? And how are the prices reacting? Strangely enough, no. We are all sitting there looking at our prices versus Q1, 2022. And back then, when we look at it, we thought we were losing Russia because you had all the companies pulling out of Russia. We thought everybody in the world was just going to stop doing business with them because everybody was so appalled that they would attack Ukraine who had done nothing against them. Now, ultimately we did not see Russian exports slow down, but there was a fear of that. We did lose a decent chunk of Europe again, because of that gas situation. So there were some real losses, but there was a lot of perceived losses. NOLA, New Orleans, Louisiana, the most liquid market out there to watch daily, saw prices top over $900 a ton, USD short ton. Today, a NOLA urea barge is only about $625. And I say only, it's still a very high cost, but still significantly lower than what it was. The problem is grain prices are nowhere near as high as what they were back in that spring of 2022. So while the price may not be as high on a flat level, from a farmer's perspective, the impact is significantly more severe. Can you tell us how the farmers are getting impacted? What's the impact of this on food supply and farmers? This could not be a worst time of the year. If you and I had spoke two, two and a half weeks ago, and you brought me on and said, Josh, okay, if you could think of a worst case scenario, what would it be? The first one would be, obviously, the straightforward move, shutting down. It's something we've talked about for years and warned about. The second would be timing. This is the worst time of the year. When you think about getting a vessel from the Middle East, assume you have an empty vessel, you have the tons at the port, you have a port opening for a loading, and you get that thing loaded out to water as soon as you can. It is still 30 days before that vessel reaches North America. And it's probably another three to four weeks before that product comes from the coast to the inland point where it's available to the farmer. So number one, it's a supply concern. Number two, obviously, is the price. The prices have been skyrocketing everywhere. The entirety of North America has been slowed by their fertilizer for spring because the numbers have never made sense. Since the start of our fertilizer year, which is July 1st, the price has always been high, the grain price has been low, and there's no reason for the farmer to jump in and buy it. It just never made sense. And now all of a sudden, everybody's rushing to try and buy it during the worst crisis that we've ever seen from a fertilizer standpoint. And now farmers have to make that decision. Do I stick with very fertilizer-intensive corn crop? Do I switch it to a much less intensive soybean crop? Do I switch it to a weed or something like that? There's a lot of questions. And honestly, it changes day by day. Right now, we do think that we are losing quite a few acres from what the high-end estimates were. We've been using 93 million acres of corn for the U.S. market. We're sticking with that. We feel very good about it, if not a little bit top-heavy today. But my bigger concern is globally. When you look at this, if there remains a long-term situation and we have to start talking about tight supplies and not enough to go around, the countries that probably suffer the most in terms of getting their supplies are very, very big on wheat production. I think that's something we do need to watch. Wheat could be the one that gets hurt the most, globally speaking. And what countries and what areas do you think will get impacted the most? I think it's gonna be stuff like Eastern Europe. I think it's gonna be like Africa. Countries such as that, maybe from a financial standpoint, maybe not as strong. If you look at it from a U.S. point of view, the government can step in. It can buy all the fertilizer. It can pay the difference. And it's a drop in the bucket for the overall government budget, right? Well, what might be a drop in the bucket for our government may be a massive amount of their portfolio for another government around the world. And it's acres that may not be able to produce nearly as much as, say, our corn belt can grow. So that's where it's gonna get into a little bit of a political situation. At some point, the farmers will start to break, and then I'm afraid the government starts to step in and say, hey, we need to continue growing our food. We'll help. Now, all of a sudden, this thing takes a life of its own. How much time do you think we have for the farmers to make those decisions? From a North America perspective, you've got about two to three weeks. The typical planting start date for the North America farmer is around April 1, sometime in that first week of April. So we're very quickly coming up on that date. They need to start making those decisions. That's not to say every single acre will be planted on that one day. It does get strung out, and so some of those later acres, they can switch back and forth. But for the most part, our planting will start April 1. So the bulk of the fertilizing buying is now, right now, essentially. It is. Again, when you look at urea, we import about five to five and a half million tons per year. The single largest arrival month for our urea imports is April. And when do those April tons need to be loaded and shipped out the door? March, which is why this is such an important time of the calendar for this event to be happening. And is there any strategic storage for this kind of products? Because we have that for oil. Right, no, there is not. Fertilizer, historically speaking, there's always been plenty of production in terms of global demand. And that's why in the past, when something would happen around the world and it would hurt supplies, it was okay. We had plenty around the world. There's plenty of production. There's always a backup. But over the years, fertilizer production has failed to keep up with global demand. And now we've gotten into a situation where that difference between production capacity and demand is not very wide. And these events that are happening are massive. So no, unfortunately, there is not a strategic demand. And that's why you see everything moving as quickly and violently as you are today. There's no backstop. And you mentioned that on top of the fertilizer producers that are impacted in the Middle East, in the area that they have to ship to the Strait of Hormuz, also other players are impacted because they use natural gas, right? Yeah, you start looking at places like India. Like I said, they are still a net importer of urea. They're a massive, massive agricultural country. But even though they produce a lot of tons, they still import. And the government plays a very important part. In order to keep the farmer price steady, the government pays a difference between that farmer price and the global price. Well, they had just finished up a purchase tender for about, they looked for 1.5 million ton. They locked up to 1.3 million ton. There's a real fear that a lot of those Western port tons that were awarded to them may claim force majeure because the Strait is closed. We cannot get you the product that we sold to you. You also have to be concerned about the gas that's not coming in. Those prices are skyrocketing. Their domestic production also may take a hit. So the Indian community, the Indian country may get hit from both sides, from an import side and a production side. And one of the biggest spot buyers in the world may be jumping in much sooner in the middle of all this happening. The world is usually, the urea world usually reacts very violently, very bullishly when they step in the market anyway. If they step in today under these circumstances, it's gonna be like throwing gasoline on fire. You mentioned there are other kinds of fertilizers. Is it just urea that's impacted and how's the impact on the other ones? And can farmers switch between these fertilizers? Right, the other one that's a major impact right now is phosphate. And again, it's a very similar situation, right? Phosphate had problems prior to the events in the Persian Gulf and the Strait of Hormuz. The phosphate world really comes down to five countries. It's China, Morocco, Russia, Saudi Arabia, and the US. So before this event happened, China was doing the same program. The government was saying, we're gonna keep these tons at home, we're gonna take care of our own before we take care of the rest of the world. They normally export between eight and 10 million ton. They exported 10 million ton back in 2021. They said this year, same as urea, we're not gonna export again until August. We were already living without the world's biggest supplier. US is the number five exporter. And our production has been operating around historical low levels since 2021. It's really come to a head here the last several quarters. And unfortunately, they're doing everything they can to ramp that back up, but old equipment and lower phosphate rock reserves and things like that have really impacted their ability to produce a finished phosphate good. So your number ones and number fives was having an impact. Now you enter the straight before moves. Saudi Arabia sits back down. They're number three in the world. Now they're shut out from the rest of the world. They are probably trying to move stuff to the West and things like that, but it's gonna be a less efficient, less ability to be able to do those sorts of things. So we're talking about, cutting the knees out from number three. That leaves really Morocco and at least Russia. Well, Russia is in a war with Ukraine and Ukraine's gotten very good about attacking Russian targets in Russian territory. So you never quite know what they're gonna be able to accomplish. And then Morocco, there's two big variable costs that goes into phosphate production. Number one, sulfur has plenty of its own problems. Number two is anhydrous. It's a nitrogen product. Those prices are going sky high. And where does a lot of their anhydrous come from for phosphate production? The Middle East. So phosphate, it has not shown the same price incline as what we have seen with the nitrogen markets, but we expect to see it very, very soon. And there's already been some signs, a few little sales, a little few vessel sales here and there. Those prices are jumping up very, very rapidly and we expect to see much more. And so when it comes down to it, the farmer, there are nitrogens, which you can change between urea, UAN, anhydrous, presuming you have the equipment and the storage and the capability, but you can't interchange nitrogen for phosphate. You can't interchange phosphate for potash. Those are all unique fertilizers, each of which have to be in sufficient levels in the soil to grow the best crop you can. Why has the supply been tight? Here recently, it is because of China not exporting. It's because of European production problems because of high gas cost. And ultimately, over the years, global production has failed to keep up the demand. And even some of the older plants have come online, we've lost production that way. And that's not to say new production hasn't come on. India just completed a few new plants to boost their own domestic production, reduce that reliance on the world. That was a great help, but it wasn't enough. Iran, I'm sorry, not Iran, India and Russia have agreed to a JV nitrogen plan. It's gonna be based in Russia, but all those tons come to India. Again, it's not enough. And that's one of the big things that I've been a very vocal pusher for is that places like North America need to step up and we need to produce more tons here. The overall, we'd like to put Band-Aids on things as far as a government standpoint. We need to fix the wound. And the wound is not enough supplies in the world. We need to step up and do our part, produce more tons to help stabilize these markets and put prices lower so we can feed every mouth in the world. And Josh, do we have enough production here for the US farmers? From a nitrogen standpoint, no. We are still a net importer of urea, UAN and anhydrous. Now, UAN and anhydrous, that is only because we export a little bit to countries like Canada, neighbors of that, we produce most of what we need. So we're nowhere near as reliant on those imports. But urea, like I said, we need about five to five and a half million tons imported every year to meet our demand. That is the one that really is a big shortfall. On the phosphate market, generally speaking, yes, we produce enough, but we do lose a lot of tons that go into like Latin America, South America, things like that. If we kept those tons home, we'd be okay. Potash, the US is a major, major importer. Our production is nowhere near enough to meet our demand. But the part of the story that those trying to increase their own production that kind of ignore, Canada is the single biggest producer in the world. They are the single biggest exporter in the world. 90% of our imports come from Canada. As long as we stay on good terms with our governments, if we can free flow material, we're perfectly fine. We've got the biggest dog in the hunt. Is it cost effective? Do the local producers in the US, can they compete price-wise with these other countries that are a lot lower cost than here? Well, today, absolutely. And in fact, you would have to assume US and North America-based nitrogen manufacturers are gonna have a heck of a good year because they are able to buy their stuff at very stable and very low natural gas prices. Is it the lowest in the world? No, but it is one of the lowest in the world. You'd have to go to the Middle East to find the lowest in the world, but they're cut out from everybody right now. So we've got some of the lowest gas, some of the most stable gas in the world, and they're able to price that good based on all these world things that are happening. It has created a situation where the margins are absolutely massive today. How long will this last if things calm down soon, or if things don't calm down, what does it look like? What does the scenarios look like in your mind when you're looking at this? I think you're undershooting me. I've already said March 16th at 3.45 Central Time, this thing is done, it's peace. No, we don't know, but we can theorize about it. And this is the thing, it's very theoretical, we've never gone through this before, so we're kind of making this up as we go, we're making guesses. My personal point of view of what happens, if you and I come back tomorrow and we do the same peace, and you say, Josh, we just heard the U.S. and Iran and everybody, we've come to peace terms, the Strait of Hormuz is back to open for business, how quickly does everything get back to normal? Here's why it isn't immediate, and I do think that there's going to be a bearish slide of prices, because there are some tired lungs in the market who are jumping at any shadow. They've made a lot of money on this, and they want to cash out, they don't want to give it back. That's happened in the past, they don't want to do it. So I think as soon as that happens, there is a bearish sell-off on some of these markets. But then very quickly, the fundamentals step back in and say, hey, we've got a bigger problem, guys. These vessels have been sitting for a while, you've got to get them all moving, that takes time. These natural gas, these oil facilities, you've got to get them up and running, that takes time. These nitrogen production facilities for fertilizer, they've been offline, we have to get them up and running. And even if that entire system starts to run again, there's only so many ports they can load ships. And to load a vessel, to park it, open it, load it, close it, push off, it's what, a two-day process? And think about how many vessels are sitting around waiting to start moving, waiting to get in line to start getting loaded. So your production capacity has to build up, and then you've got to catch up on the vessels. And that's why we sit there and look at it, even if the best case scenario, everybody is at peace by tomorrow morning, we're talking weeks, if not months, before this thing works itself out. There is no quick fix to where we are. Had this all been rectified after two, three, four days of hiding, I think we could have done it very, very quickly. Two weeks in, we're talking months. What about if this drags on for a few other weeks? Is that going to have a huge impact, or is it going to be similar to what you're seeing? I think we go two more weeks, and we are above the highs we set back in 2022. My fear will be- In terms of the price of the fertilizers? Yes. Yeah, in terms of the flat price. Like you take urea, no urea topped over $900 a ton in early 2022. It's like March, late March, 2022. I think we blow through that. And the reason is, again, we're in a very high demand period and I'm afraid after a couple more weeks, I think governments start to step in and start playing a little bit more of a part. And anytime a government starts to get involved, the price can skyrocket because now you're not talking to a trading company. You're not talking to a farmer. You're not talking to a distributor. You're talking to government. Those zeros go on a long time. To a certain extent, the market will see it and say, I can get away with a lot more with them participating now because there's so many dollars at play. There are so much. If the government is involved, they're desperate. Now, are the companies that are producers of fertilizers here, are they benefiting? Are they going to benefit a lot this year? Yes, significantly. Again, they are still dealing with very cheap gas. You look at Henry Hub pricing, some of the inland pricing, it's still very stable. It's still doing very well. Maybe it's a little bit elevated, but the price of that finished good is so much higher. We do expect that nitrogen and phosphate manufacturing should be significantly better than what they had been before. And frankly speaking, they were very healthy before this all started. And what about other regions of the world? Are there any other countries that are going to benefit from this? You would sit there and say, well, the Middle East is going to, they're just going to do phenomenally, but they can't produce. They can't get their tons to the world. So that's going to be impactful. It's going to be hurtful to them. They will make some of it up when everything reopens because we've raised the price floor of these markets, I believe, for the better part of 2026. That will be a benefit. So do you think the price will stay elevated for a while? I do, because I think that the tons that we are actively losing today around the world, I think is going to significantly impact the global S&D. I think it's going to create an incredibly much tighter than normal supply situation, which means that when it comes to negotiations, the buyer and the seller, the seller being the manufacturer, I think that when there's a conversation between the two of them, the buyer always wants to pull the price down. The manufacturer is going to say, I know how tight these supplies are. Do you remember what happened in the Middle East? Even if everything's back to operational, do you remember what happened in the Middle East? That's an incredibly powerful tool to use in these negotiations to price that product. I know you're in the fertilizer business, but you are in touch with farmers. And what do you think, how do you think their food prices will get impacted? Do you think it will reach their grocery stores? I think that it will, but I don't believe it'll be as stark as some of the numbers that we're looking at from the farmer, right? There is a lot of things for it to get through before it gets down to the grocery store. But yeah, if this thing continues for a few more weeks, I think you start seeing these prices go up and you start to see corn prices up. It's going to drag beans and wheat and everything else. And eventually that will be borne by the end consumer. I hate to say it, everybody in the middle of that supply chain, they don't want to give up their piece. They don't want to be, hey, we'll step up, we will make less for the good of everybody out there. They're going to say, no, I'm used to making X, Y, Z. I'm going to continue to get X, Y, Z. So whatever I get on the buy side, I'm going to sell for that much more. And that, if the farmer's on the one end of that spectrum, the grocery store's on the other. Do you have any recommendations for policymakers based on what you're seeing right now? And you've been in this space for a long time and this is an unprecedented time, right? It is. We've never seen anything like this. I can tell you in 24 years, I've never seen anything that even comes close to this. I'm talking from a U.S. point of view. I'm in Kansas City, Missouri. So I'm about central as it gets. My conversation piece is, and they've been different based on the different fertilizers. From a nitrogen standpoint, I think from a short-term standpoint, I think that the government needs to consider doing away with DEF standards and regulations because that's very heavy nitrogen. That's nitrogen can go back to the farm gate. And I understand we're giving up something from an environmental standpoint, but there's a lot of wear and tear on the equipment. There's a lot of questions of what it actually does. That could be a very short-term help. Medium-term, if the government would consider some low-interest loans to current manufacturers to maybe look at demodeling construction projects, that could be a medium-term help. Longer-term, we need to be building more nitrogen production. We've got the gas. We've got the best environmental standards out there. We can produce it here where the demand actually is. So that's kind of my short, medium, long-term. It would take a lot of outlook by the government beyond just putting a Band-Aid on the current problem. We have to sit there and say, yes, we recognize there is a major wound here that we need to fix, and here's the steps to do it. That's how I would do it. Phosphate, from a short-term standpoint, we've still got these countervailing duty rates against Morocco and Russia. Removing that would be a little bit of a help, but unfortunately, I don't think it's a silver bullet. People think that it might be. It might help with supplies a little bit more than what they've been. But longer-term, we're running out of good phosphate-quality rock. That's not to say there's not more out there, but the stuff we have access to is continuing to decline. However, countries like Norway found a major phosphate rock reserve. Saudi Arabia is increasing their production. Morocco's increasing. Egypt's trying to increase. Australia's trying to increase. Go to some of these countries and say, if we help to invest in these projects, play a major part in the investing side of it, could we get a long-term supply agreement as a return, as a payment for it? And in that way, we may not be producing it here at home where we all want to, but longer-term, at least we have that agreement in place. We, as best you can, know those terms are coming into the U.S. marketplace. So that's how I would look at the phosphate potash. It just comes down to, don't make Canada mad. Stay on good terms with Canada. As long as we're there, we're okay. Josh, you are in this space, and do you see this space as a good opportunity for people that are looking for opportunities to get involved with investing? I think right now, given the way this thing is, there's a lot of volatility. Obviously, there's a lot of support out there. You asked about the domestic nitrogen manufacturers and things like that. That is about as perfect a scenario if you were one of those that you could ever ask for. Josh Linville, it was great to have you on Market Insider, and we'll see you next time. Thank you, sir. What do you think about the situation with fertilizers? Let us know in the comments. I'm Siamak, and this is Market Insider. We'll see you next time.