Grain prices are high, and the demand side of fertilizer is strongly pulled

1. Inflation + low inventory + demand, global food prices are more likely to rise than fall. In the context of macroeconomic recovery and intensifying inflationary pressure, food prices at home and abroad have continued to rise and remain high since 2021. At the same time, under the pressure of epidemic prevention and control, the rigidity of food demand has been further highlighted. In addition to the recent announcement of a 50% reduction in the area of spring farming in Ukraine, and the impact of spring farming in the northeast of China to a certain extent, we remain concerned about the global food supply. From the inventory side, according to Mosaic statistics, international grain and oil stocks in 2021 further declined, and the ratio of inventories to sales was at the lowest level since 2003-2004, and it is expected to continue to maintain the status quo. According to Bloomberg statistics, the current overseas corn, soybean and other staple food stocks are at a low level. In this context, we believe that international and domestic food prices are more likely to rise than fall.

High food prices will drive demand in the fertilizer industry. According to Bloomberg data, the US farm cash flow profit in 2021 hit a new high since 2013, and it is expected to further increase in 2022. This reflects that with the rise of grain prices, farmers' planting profit rate has increased, and their expectations for future planting income have increased + working capital has increased, so it is expected to continue to increase the demand for and investment in agricultural materials. Historically, fertilizer prices have been closely related to grain prices, and grain prices lead by six months to one year. Therefore, we believe that the high food prices will drive the demand of the fertilizer industry.

For phosphate fertilizer, Mosaic predicts that global phosphate fertilizer shipments will further increase in 2022, and the annual growth rate of global phosphate fertilizer shipments from 2020 to 2025 will be about 1.7%. IFA forecasts that global demand for phosphorus (phosphoric acid + phosphate fertilizer) will grow from 47.5 million tonnes (converted P2O5) in 2020 to 52 million tonnes in 2025, an annualised growth rate of about 1.8%. By country and region, Mosaic predicts that China's phosphate fertilizer demand in 2022 will increase significantly compared with 2021, with an increase of 3.5% to 6.4%.

2 The Russia-Ukraine conflict intensifies the supply of agrochemical products, the low global fertilizer inventory + overseas peak season is coming, and the price still has room for upward movement

The conflict between Russia and Ukraine, and the sanctions imposed on Belarus before it, have affected global food and fertilizer supplies. On March 10, local time, Russia decided to temporarily suspend fertilizer exports, adding to the latest news on March 13, Ukraine announced a temporary ban on the export of all types of fertilizers, as well as Belarus potash was banned before the export, the global fertilizer supply will be further strained. In terms of food, Ukraine is a major global corn exporter, accounting for about 12% of exports in 2021; Russia is an important global wheat exporter, accounting for about 16.5% of exports in 2021. In terms of potash, Russia and Belarus are the world's important potash production and exporters, according to UCGS statistics, in 2021, the two countries' combined potash production accounts for about 37% of global production, combined with its important position in global trade, the export ban will lead to a total of about 35% of the world's potash supply affected. In terms of phosphate fertilizer, according to OCP statistics, Russia's phosphorus production capacity (including phosphate ore, phosphate fertilizer, phosphoric acid, etc.) accounts for about 8% of the world. In addition, Russia's phosphate exports accounted for about 11% of the total global phosphate trade in 2019. In terms of nitrogen fertilizer, Russia's urea exports will account for about 11.5% of the world's total in 2020.

We found that global fertilizer prices have actually entered the upward channel since last year, mainly because: 1) global food prices are high; 2) The continuous and repeated impact of the overseas epidemic on the start of work; 3) Rising upstream raw material prices in the context of inflation support costs; 4) Disruption of sea transport. From the price of nitrogen, phosphorus and potassium fertilizer we track, the current international price of potassium chloride is $750 / ton in Southeast Asia, +11.94% compared with last month. Mono-ammonium phosphate (Baltic 55% FOB in bulk) USD 1,197.5 / ton, +12.24% compared to last month. Urea (Baltic bulk) $790 / ton, +16.18% compared to the previous month. Therefore, the Russia-Ukraine conflict is actually a black swan event, which has further impacted the already tense global fertilizer supply and demand situation, catalyzed the continued rise of grain prices and fertilizer prices, and the high prosperity of the agrochemical industry has been continued.

From the perspective of inventory, the current global fertilizer supply tends to be tight, and the inventory of three kinds of elemental fertilizer and compound fertilizer in the Indian market has been at a low level since 2021, and the domestic phosphate fertilizer factory and port inventory, potash fertilizer factory and industry inventory are also at a low level. Low inventory stack plus April domestic and the end of the second quarter to the third quarter overseas fertilization season is coming, we judge that under the global replenishment demand, phosphate fertilizer, potash fertilizer and other price centers or will be further increased.