Inside the global fertilizer crunch

While much of the world has been focused on the war in Iran’s impact on the energy sector, another arguably more impactful market has been largely overlooked: fertilizer. The global fertilizer market is in a precarious spot. Roughly a third of the world's seaborne fertilizer trade goes through the Strait of Hormuz. Even before the war in Iran began, China, the world’s top phosphate producer, halted exports of the crucial compound. As a result, the longer the strait remains closed, the more the threat to our global food supply escalates. In this episode, Shayle speaks with Josh Linville, vice president of Fertilizer at StoneX, to make sense of the global fertilizer market and its cascading impacts. Shayle and Josh cover topics including: The current state of global fertilizer markets The tenuous relationship between natural gas prices and the cost of producing nitrogen-based fertilizers in Europe How stalled shipments of fertilizer could impact supply and demand for next year’s planting season The impact of Chinese phosphate export restrictions on the global market How a prolonged closure of the Strait could impact food supplies around the world Resources Josh Linville’s X account Open Circuit: Iran, energy shocks, and the case for distributed power Latitude Media: DOE’s second ‘Energy Dominance’ loan was reworked to embrace coal Latitude Media: This isn’t demand destruction. It’s rationing. Credits: Hosted by Shayle Kann. Produced and edited by Max Savage Levenson. Original music and engineering by Sean Marquand. Stephen Lacey is our executive editor. Catalyst is brought to you by FischTank PR, an award-winning climate and energy tech, renewables, and sustainability-focused PR firm dedicated to elevating the work of both early-stage and established companies. Learn more about their PR approach and how they can support your company’s messaging by visiting fischtankpr.com. Catalyst is brought to you by EnergyHub. EnergyHub helps utilities build next-generation virtual power plants that unlock reliable flexibility at every level of the grid. See how EnergyHub helps unlock the power of flexibility at scale, and deliver more value through cross-DER dispatch with their leading Edge DERMS platform, by visiting energyhub.com. Tune into Critical Capital, a brand new podcast from Crux and Latitude Studios. Hosted by Crux CEO Alfred Johnson, Critical Capital explores the interlocking forces powering clean and critical infrastructure. Join us every other Tuesday for in-depth conversations at the intersection of energy, government, finance, and global markets. Listen here, or wherever you get podcasts.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Speaker 00

  Latitude Media, covering the new frontiers of the energy transition.

• 0:08Shayle Kann?

  I'm Shayle Khan. I lead the early-stage venture strategy at Energy Impact Partners. Welcome to Catalyst. So it's been, as of this recording, a little over 10 weeks since US and Israeli airstrikes hit Iran, and a little over 10 weeks since the Strait of Hormuz effectively shut down. Most of the energy world has been focused on what that means for oil prices and LNG flows, and all of that matters, obviously. But there's another story unfolding in parallel that, for a lot of people, both in the United States and globally, might actually end up being the more economically consequential one, is what's happening to the global fertilizer market. Up to a third of the world's seaborne fertilizer trade transits the same choke point as the oil. Three of the top 10 global urea

• 0:51Shayle Kann?

  exporters, Qatar, Saudi Arabia, and Iran, sit behind the strait. Roughly half of the world's tradable sulfur supply originates in the Persian Gulf, and by some accounts, a million tons of finished urea is sitting on vessels right now, unable to get out. A barge of urea at New Orleans was trading in the high 400s the day before the war started. The high trade since then has been about 700. At first glance, this kind of seems like a textbook commodity shock. The strait closes, prices spike, prices settle, and shipping reopens, life moves on. But I'm actually not sure that's the right frame. This isn't a single shock story, it's a stacking shock story. China has been almost entirely absent from the urea and phosphate export market for months now because of their own export

• 1:36Shayle Kann?

  ban that technically runs through August, though we'll see. Europe is still running nitrogen at around 75% of capacity because of gas costs that have been high, tracing back to 2022 and the Russian invasion of Ukraine. The world's largest producers were basically already walking into this Hormuz crisis with almost no shock absorption to give, and there's no strategic fertilizer reserve. So the global system was, to borrow a phrase from my guest today, already living on a razor's edge. It's a little bit scary. So to walk through where all this goes from here, I was joined today by Josh Linville. He's the Vice President of Fertilizer at StoneX, and as you will soon see, a deep expert in these markets. That's all coming up after the break.

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• 3:58Shayle Kann?

  Josh, welcome.

• 3:59Speaker 03

  Hey, thanks for having me on. It's a fertilizer market's got a few things to talk about.

• 4:03Shayle Kann?

  That's how I understand it to be. Let's do it. Start with what's been going on over the past 10 weeks since the US invaded Iran. Like, what's happening in the fertilizer market at the high level?

• 4:14Speaker 03

  We, as a market, have experienced a supply tightness that we've never seen in the history of our markets. Now, we've had periods where supplies have gotten snug, we've seen situations where prices have gotten high, but nothing ever to this extent. And it's all surrounding the Strait of Hormuz, or so the market likes to think. The problem is, if you go back to January 1, nitrogen markets and phosphate markets were already dealing with supply tightness because of European production rates, because of the lack of Chinese exports, because of the ongoing Russia-Ukraine war. The Strait of Hormuz was just that shot of adrenaline that nobody really needed. So, it's a period that we've never seen in this marketplace. We've always theorized, but it's always one of those tongue-in-cheek, like, who in the

• 4:56Speaker 03

  world would ever think the Strait of Hormuz was going to shut down for 10, 11 weeks? But here we are. And we're just trying to get through it and trying to kind of transition from the spring season to the summer season and figure out, how's all this going to play out?

• 5:08Shayle Kann?

  So, there's a lot to unpack there, because I think you made one key point, which is, this is about the Strait of Hormuz, but Strait of Hormuz was maybe like a straw that broke the camel's back kind of situation, and the market was already tight before that. If I could take a big step back, I think I, as well as many of our listeners, are pretty familiar with energy markets, and less so with fertilizer markets. Is the fertilizer market similar to the energy market in that, you know, individual countries may have stockpiles, and there's, you know, a pretty dynamic trade that you'll have countries that are net importers, others that are net exporters, some are self-sufficient, some are not. Like, orient me in how the global fertilizer market actually works.

• 5:49Speaker 03

  I would say they mirror, in a lot of the ways you just mentioned, except there's not strategic reserves. That's one of the things that actually has been talked about quite a bit since all this has broken loose from a US perspective. People are like, well, we need to have a fertilizer strategic reserve like we have with oil. The problem is, when you look at oil, it's a much, much easier product to store for years, for decades, if we're assuming you do it correctly. Fertilizer just does not store that well. It breaks down very quickly, and there's always the question of like, well, where does it go to if you ever need to call on it? Who gets it? At what price? And how does it get there? And so, it's just not something that really makes sense. A lot of the countries around the world, US included, have a tremendous amount of storage already built in through their retail network and a growing farmer network.

• 6:33Speaker 03

  So it may not be something that's government controlled, but there is a lot of storages out there and that's the one thing that helped out North America. We are self-sufficient on potash. Uh, from a Canadian standpoint, they are the biggest producer and exporter in the world. We are mostly self-sufficient on phosphate, uh, as the spring season has shown. UAN and, uh, anhydrous, both nitrogen products. We produce almost all that we need here in the North American marketplace. urea is the one that we need the most imported. We are nowhere near self-sufficient. Fortunately, when all this broke loose, we already had a tremendous amount of that import on its way or already here in storage. So the North American marketplace has been able to kind of get away from this whole situation, has been able to weather the storm.

• 7:16Speaker 03

  It's other parts of the world that we're much more concerned about.

• 7:19Shayle Kann?

  So it's also kind of true in oil and gas world as well, where we've been a little bit more resilient because we're a net exporter in that space than you see in other countries. So give me a sense, I mean, you, you said we were, we've experienced a version of supply tightness that we have never seen before in the history of these markets. How has that manifested? Like, give me, give me an example of pricing or shortages, like what has happened as a result?

• 7:42Speaker 03

  The best thing to show as far as talk about that's actually living proof of it is India. Now, India is a little bit of a different beast. A lot of the world farmers have to ebb and flow their demand based on where prices are because their price is a direct correlation, reflection of what the world market is. Indian farmers, they don't care what's going on around the world. Their price stays low and steady and that's dictated by the government. And what the government does is they subsidize the price difference between that farmer and the rest of the world. So their demand doesn't move because they just don't care. They paid one of the highest prices we've seen in a very, very long time here recently to buy two and a half million tons. Over $900 a ton, I think the West Coast, uh, prices were $935 a ton.

• 8:25Speaker 03

  East Coast prices were nine fifty plus. An incredibly high price, but they were still able to find the product. What we've been watching very, very closely is countries like Australia. Now, again, I'm not gonna say, I was about ready to say fortunately for their drought because that's not the right way to say it, right? Their drought has been terrible. But from a strict fertilizer standpoint, their demand has been much lower because the farmer's saying, I'm not getting rain. I'm not going to invest in the fertilizer. If that rain were to come, they are going to experience shortages because that product just isn't in place. We're watching for Asia. We think that's going to be an area that's going to be very, very snug. Eastern Europe, that area is going to be very, very snug. The longer this continues, now it starts to manifest itself in places like Africa,

• 9:08Speaker 03

  like in South America, because they'll be the next ones up to start buying this product. So fortunately, through all of this, we've not heard anybody really jumping up and down saying, "I cannot get my hands-on product." At the right price, you can find it. We've not heard true shortages. The longer this goes on, the more likely that is to happen.

• 9:27Shayle Kann?

  Right. So we're in the situation where fertilizer prices, and then assuming that gets passed through, food prices ultimately are inflationary because fertilizer prices are higher. We haven't yet reached the food shortage phase that we might see if things continue. I do want to go back and talk through all those dynamics that you listed out. So let's do this. Let's talk about the pre-Hormuz list of things that was causing supply tightness, and then I want to talk about Hormuz and the impact that it has had. So pre-Hormuz, you mentioned one, which is China. So what's China's role in the global fertilizer supply chain and what changed there recently?

• 10:05Speaker 03

  Historically speaking, China is the world's largest phosphate exporter, and it's not even a close second. From a nitrogen standpoint, from a urea standpoint, they are typically the world's second or third biggest exporter. And from my vantage point, now I do think that there are some domestic production situations they're going through, right? They're trying to clean up their environment, they're dealing with some input supply problems, things like that. But I think China has figured something out. Now, this is my very naive, elementary viewpoint of the world. Everybody talks about, "Oh, the biggest danger is the communism, right? It's the US invading them. It's this, it's that." My point of view is, it's none of those things. Communism's biggest fear is

• 10:46Speaker 03

  an uprising by their own people. Well, according to Google, about a quarter of their population is tied to ag. So if they're a net exporter of urea, if they're a net exporter of phosphate... Why not stop those exports? In doing so, you're keeping domestic supplies tight when the rest of the world is struggling. And you're keeping your domestic price low because those you've basically flooded your own marketplace. You've just made a quarter of your marketplace thrilled beyond any measure of a doubt because they are some of the most competitive farmers in the world because of those low prices. And I think the government has seen that. They've just continued to sit there and say, we're going to keep these exports at bay. Yeah, we can make more money if we export it. The income flow would be great, but it's a rounding error in the China GDP.

• 11:31Speaker 03

  It's more important to keep a quarter of your people happy. So they've continued to keep them. Where the last time they had talked about, they said they were going to export. They're going to start allowing it in August. Whether they're going to keep at that timeline or not, we don't know. It's China. You never know until it's too late.

• 11:45Shayle Kann?

  So just to clarify, historically, China was the number one phosphate exporter, the number two urea exporter, and then they basically stopped exports. And as of now, they've stated they're going to start exports again this summer. But TBD if that actually happens. So that's thing one that was already contributing to global supply tightness. Then there's Europe and the Ukraine Russia situation. What impact did that have?

• 12:10Speaker 03

  This goes all the way back to 2021. And during that time, that is when you saw Europe basically sit there and tell Russia, we're not interested in any flows from your Nord Stream two pipeline that you just spent all this money building. And they got into a tiff and eventually Russia shut off the flows. And then somebody, I still don't think we actually know who did it. Plenty of theories, but we don't know actually blew up the pipelines under the water. Well, from a Russia's standpoint, why would I go repair them? Europe doesn't want the gas. I'm not going to go spend the time and the money and the effort to repair those pipelines. European gas values skyrocketed, right? That Dutch GTF went from whatever the normal was, three, four, five dollars in MMBTU to I think it was August 2021, a hundred and three dollars in MMBTU.

• 12:52Speaker 03

  Now, since then, we've normalized the market and they're finally back to like 10, 15 is kind of their normal range. But that means their production, their nitrogen production in Europe is only sitting about 75% of normal. And that's for all of Europe. And when you start to break that down, that's about three and a half million tons of urea that's not being produced a year. That's a couple of million tons of UAN not being produced a year. And that hurts. Their farmers aren't going to just sit there and say, well, darn, I guess if we're not producing it, I just won't use it. That means all of a sudden, those tons that aren't being produced now get shoved on the world market as an unnatural buyer and start competing with everybody else trying to buy those tons to replace them. So it's less supply and it's more demand. That's helped boost prices and that's something

• 13:33Speaker 03

  that's been ongoing for a while. And unfortunately, at this point in time, we're sitting in 2026. I don't know that we will ever see 100% in Europe again. I think we've got to really look at them and say, how many of these plants have been offline now for years? How many of these will actually come back online in the future?

• 13:50Shayle Kann?

  Is it, is it in that case because they have insufficient supply of gas to feed those, those projects? Or is it that gas prices are too high and so they'd be losing money on producing more?

• 14:03Speaker 03

  It's gas prices too high. When you look at the economics of it, it just doesn't make sense with where global nitrogen values are. And I also think there's the political aspect of it, right? The European political engine has been really charging towards green energy. And frankly, this old school, old technology nitrogen production, from their viewpoint, is very dirty. It's outdated. We don't want to have anything to do with it. So you've already got bad economics for the plant. And then you've got a political outlook that basically sits there and says, don't put any money in these plants because you're probably not long for this world. We're not going to support it. We're doing everything we can to shut you down.

• 14:40Shayle Kann?

  Okay, so we have China stopping exports. Then we also have Europe producing less as a result of high gas prices as a result of the Russia-Ukraine war. Then the US invades Iran. Talk to me about the role this trade of Hormuz plays in the global fertilizer trade.

• 14:59Speaker 03

  From a nitrogen standpoint, there is not a more important body of water in the entire world. About a third of the world's tradable urea gets exported through that waterway. And so we always look at the top 10 exporters in the world. That's who you really want to watch. Three of the world's biggest urea and anhydrous exporters sit behind the strait. They're in the Persian Gulf. It's Iran, it's Qatar and Saudi Arabia. And with that body of water still closed to normal traffic, that means all those tons are locked away and just missing. And because this has gone on for so long, those plants have had to have slowed down dramatically or completely shut down because there's nowhere to go with that finished good.

• 15:35Shayle Kann?

  So they're not stockpiling?

• 15:37Speaker 03

  Yeah.

• 15:37Shayle Kann?

  They're just not producing?

• 15:38Speaker 03

  Yeah, there's only so much places to stockpile this stuff. I mean, after a certain point, your covered storage runs out, you've got it filled. And some people have said, well, maybe they're shipping it out into the desert and storing it out there. And listen, anything's possible, but I wouldn't think that's a step that they would want to take. So you've got to believe a lot of this product is just not being produced today because there's nowhere to go with it until the strait reopens and vessels start to show up again.

• 16:00Shayle Kann?

  Okay, so how much of, I mean, I don't know, give me a sense of the magnitude of the shock that has created. How much of global supply then is just, has, you know, vanished while the strait of Hormuz is closed?

• 16:12Speaker 03

  With that body of water closed just in itself, I think we're talking about a third of the world's tradable urea, gone. And a good chunk of the global anhydrous. It's, I mean, the same thing. These same plants that produce urea also produce a tremendous amount of anhydrous. But that's not even the worst part of it, right? Then all of a sudden, you got to think about, well, what else comes out of that body of water? You've got LNG shipments that are stuck behind there. And that feeds major manufacturers like India. I mean, to give you a scale of it, Europe, we're talking about, you know, there's 75% production rate. That's three and a half million tons missing. India is very reliant on those LNG exports from the Persian Gulf. That's how they feed their nitrogen plants. And just to give you a scope of size, they produce over 30 million ton of urea every single year. And at one

• 16:57Speaker 03

  point, at their worst spot, their production rates were down to 50 or 60% of normal because of high prices, because of the lack of the input. So that's on an annualized basis, that's 15 million tons per year that was missing. That's the equivalent of all of Europe. So that's where this thing is just completely blown out, right? It's no longer just the individual products. Now we're talking about the inputs and for phosphate, it's the lack of sulfur and the lack of anhydrous and the high price of those. It's just, this thing has just continued to branch out bigger and bigger and bigger every day and every week as this continues.

• 17:29Shayle Kann?

  You know, I guess stepping back for one second, you've talked about there are different products in fertilizer world. You've talked about urea and anhydrous ammonia and phosphate fertilizer and they all have somewhat different supply chains, obviously, and the geopolitics are different for each one. How much switching can be done? Like if the phosphate supply chain totally dries up, can the growers who are currently using phosphate switch to something else? Is that, is that something that happens or are you pretty locked in to whatever your fertilizer is?

• 18:00Speaker 03

  You can switch around in the silos. And the typical, the major products are nitrogen, phosphate, potash. Now, there's a lot of other micros out there, right? There's sulfur and everything else out there, but those are the three majors. And take nitrogen, for example, the three major products within that silo are urea, UAN, and anhydrous ammonia. You can switch between those products, presuming that you have the equipment and the storage and the technology to put it on the fields and things like that because a unit of nitrogen is interchangeable between all those. Now, there's some that are going to say, listen, I'd rather do liquid, I'd rather do dry, or rather do gas, but it's all nitrogen. You cannot sit there and say, there's not enough phosphate to go around, so I'm just going to make it up with nitrogen.

• 18:42Speaker 03

  They do completely different, separate roles from each other. So what happens in the phosphate market, unfortunately, you can't get help from potash, you can't get help from nitrogen. It is what it is.

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• 21:07Shayle Kann?

  So we're 10 weeks in now to the US post-invasion Iran. I mean, the trade-in for moves has been closed for most of that time now. Have we, are we feeling the full effects of that at this point? Or is it like a delayed reaction because people have worked through whatever stockpiles they had and so on? Where are we in the cycle?

• 21:29Speaker 03

  I think we're in a situation where... We've gotten past the bulk of the global demand. What I mean by that, everything for the world from a spring perspective, northern hemisphere is kind of wrapping up. What you have in place is what it is. That's what you're going to have. Now we're moving to the summer period, which is typically very, very slow, very, very quiet from a demand standpoint, and when you see your typical low prices for the year. The issue is going to be, that period's going to be even quieter because the sellers are going to sit there and say, listen, my price needs to be incredibly high for all these reasons that are absolutely right. And the buyer's going to sit there and say, well, look at the grain price, look at all this other stuff. This makes no sense for me to buy it. I'm not going to do anything. So I think we turn into a stalemate.

• 22:13Speaker 03

  And then as we start to move into, let's say, the fall, the winter, the Q3, Q4 period of the year, now all of a sudden, we're going to start to see more of the carryover effects from what's going on today. And that assumes this entire situation fixes itself, the straight reopens. If it doesn't and it continues, bad goes to worst every single day that it continues. We have, if this thing stays closed for a little while, we do have to start having conversations of who gets it? Who's willing to pay the most? Who's able to pay the most to get their hands on this product because there's not enough to go around?

• 22:48Shayle Kann?

  Before we talk about the it doesn't open scenario, just playing through the it does open scenario sometime relatively soon and shipments start up again, you're saying that even then, that fall period into the winter when demand normally picks up again and prices rise, that's going to be super tight already. People will have been basically frozen through the summer, but they'll need to order again. The demand side will need to pick up. In the fall, suppliers will still be tight, prices will be high, but it may not be a situation where we're effectively rationing fertilizer on a global basis. Is that right?

• 23:24Speaker 03

  Yeah, I think so. And listen, this is all theoretical, right? We've never seen anything like this in the marketplaces. I mean, it's stuff you talk about, it's, you know, classes, you can theorize and, you know, speculate, and that's all we're doing is trying to make as good and educated guesses we possibly can. We don't quite know, but I always look at it from a very fundamental standpoint. The price, the S and D, the buyer and seller, it's all about who has more pressure. When the seller has more pressure, the price falls. When the buyer has more pressure, the price rises. And after we move out of the summer quiet period, we start to move into a situation where that buyer is like, I've got to start getting stuff. I've started, I got to start getting some of these supplies. I've got farmers walking in the door. They're wanting to apply some stuff. They're wanting to buy ahead. Now all of a sudden, that pressure

• 24:06Speaker 03

  moves back to them and the supplier side, the sell side can sit there and say, listen, all of these tons that weren't produced, that weren't exported, et cetera, is still carrying over. And ultimately speaking, we could see some dips here and there, but I think the entire structure of this marketplace stays higher price than average, probably through at least spring of '27.

• 24:27Shayle Kann?

  You know, I guess it's not binary. The Strait of Hormuz, opening or not opening, right? You could see a trickle of ships. You could see something in between selective shipments. Who knows what's going to happen? I'm not, I'm not here to predict geopolitics. But is it kind of a linear thing? Like, the more supply you can get out from behind the strait, the more rational and reasonable the market is going to be, the lower prices are going to be? Is it, is it just direct correlation like that?

• 24:55Speaker 03

  Yeah. And in fact, one of the things we did, we, we used a vessel tracking company, and we went through and we tried to figure out how many tons of urea are sitting on vessels right now that got caught behind the strait when it shut down. Our estimates are somewhere between 900 to a million tons are sitting on vessels right now, literally just sitting in the Persian Gulf, waiting, waiting for somebody to give them the go-ahead. They can sail through safely without any sort of a fear of attack. So let's say that thing opens right now. As we're talking, all of a sudden, all the news stations come out and say, the strait is open. The president says, strait's open. Iran says, yeah, it's all clear. Go ahead. That's 900,000 to a million tons that needs to find somewhere to go during a historically low demand period. That's going to create a situation where

• 25:40Speaker 03

  prices fall, but it doesn't fix all the supplies that were lost throughout this entire 10-plus week period.

• 25:47Shayle Kann?

  Because that million tons was meant to be delivered in the spring period, you're saying?

• 25:51Speaker 03

  Yes.

• 25:51Shayle Kann?

  That's the interesting dynamic about the fertilizer market, because it's so seasonal.

• 25:54Speaker 03

  Yeah.

• 25:55Shayle Kann?

  That like, you missed the window, basically.

• 25:57Speaker 03

  Yep. And that's what we're looking for, for a major bearish event. If that thing opens right now, everybody in the world's going to throw their hands up and say, I don't want it. And the ship owner is going to say, well, you bought it. I bought it for spring delivery. I don't need this stuff. You know, take urea, for example, our, the next time we use urea is going to be spring of 27. I don't want to buy that at these prices, this far in advance. And I think a lot of the countries around the world will do exactly that. Just sit there and throw their hands in the air and say, I'm reneging on my purchase because I don't need it right now. You find somewhere you can deliver on it.

• 26:32Shayle Kann?

  That's such an odd dynamic in the market where you've got this extreme supply tightness. And at the same time, if that supply were to show up tomorrow, there would be no demand for it.

• 26:42Speaker 03

  Yeah.

• 26:43Shayle Kann?

  How long can it sit on that ship?

• 26:46Speaker 03

  It's going to depend on the conditions of the ship and loading and things like that. And the quality of when it was produced. So, I mean, if it's good quality coming out of the facility, presume it's a well, let's say a tight ship, right? You don't have a bunch of leaks. You don't have humidity getting into the holds. It can last for a while. But the problem is, the true nature of it is humidity is a big thing. I mean, you're sailing across the ocean. You're surrounded by water. That water, that humidity seeps its way into it and that degrades the quality of it. It starts to go down. It starts to kind of break it apart. So, I, I don't know. There's too many variables there, but I would say you're probably talking, you're not talking years, you're probably talking months.

• 27:25Shayle Kann?

  Which means that potentially if they were forced to hold it until spring 27, it would sour before then.

• 27:30Speaker 03

  Yeah, I, I think it'd be something where if you have the market opening sooner than later, you probably have a market that starts to diverge. Cause right now it's just, listen, a urea ton is a urea ton. You have a little bit of a difference if it's a open origin or if it's coming from this place to that place. I think you get a new variable in the marketplace where it's like, these are tons that were sitting in the Persian Gulf prior to the Strait of Hormuz. And I think that trades at a different delta to the rest of what we would call the normal market, just because there is that fear of what the quality looks like.

• 27:59Shayle Kann?

  Okay. So that's the scenario where the, the straight opens in the near term and then things are still pretty wonky for, for a while. Um, I don't want to fear monger, but in the, in the scenario where the straight stays closed for who knows, some number of months additionally, what does that look like?

• 28:17Speaker 03

  We have to start having a very hard conversation of shortages around the world. I'm trying to think of a nicer way to say it. I don't think I have a way of doing it. If we, if we get to the 4th of July and the street is still closed, if we start up with, uh, my youngest is a freshman in high school, be a sophomore in the fall. If he goes back to school in the fall and the street is still closed, we have lost so much supply out there. It's now a situation of who is willing to buy it. It becomes eBay. If I'm a manufacturer that's not situated in the Persian Gulf, and I've got tons, I'm gonna sit there and say, I have got a vessel ready and loaded. I've got the tons at the port. Who's paying me the most? Submit your bids and I'll let you know who wins.

• 28:55Shayle Kann?

  Is there, I presume, so, you know, when Russia invaded Ukraine and gas became tight in Europe, then of course, there's been a big conversation in Europe about uh, self-sufficiency from an energy perspective, and that has resulted in lots of policy and, you know, we see versions of that all over the place. We're seeing that, I don't know, with rare earths now in the United States, right? When China shuts off the supply of, of refined rare earths, now we're trying to spin up our own domestic refining capacity and so on. I presume that, that people are talking about that in fertilizer world right now. The import reliant countries must be thinking, um, this is a pretty precarious and dangerous situation. Maybe we don't want to put ourselves in this position in the future. Two questions. One, is that happening? Do you see that happening?

• 29:39Shayle Kann?

  And two, how long does it take to stand up new domestic supply?

• 29:43Speaker 03

  I think it's happening to an extent. The problem is, it's not happening on the products that we actually need. Uh, like I said earlier, anhydrous is one that we produce almost all that we already need. So we're not that reliant on imports, and that's where a lot of the new nitrogen production is coming from. It's new anhydrous facilities, and a lot of it's backed by this green energy. Whether it's green or blue, it's clean energy technology. And the issue with that, and I'm not sitting there saying I'm opposed to it. I'm, I am all for new production that cleans up the environment. You know, best friend was a Boy Scout, most of my boys were Eagle Scouts, and leave the world a better place than what you got it. I'm all for it. But the problem is, we're talking about food supplies. You know, the, the product that actually grows that food, and my fear is, these products,

• 30:25Speaker 03

  the technology may be not there quite like we think it is. We're getting ahead of ourselves. And we're leaning too far into it, and all of a sudden in the future, we're gonna figure out, oh no, we went too far down this path. It doesn't quite work. We need to get back to where it was, which brings you to a second question. Building a new facility takes years. Literally years from the second you say, okay, I want to build this. I have the funding. I want to build it to go through the engineering, the construction process and everything like that. It's something that takes multiple years for that to actually spit out the first ton. And that's the biggest issue that we have seen. With all this going on, if we're going to go through all this pain of high prices and tight supplies, you would think that, okay, to your point, we're going to increase our own production. We're going to reduce our reliance. Yes, it's worked for a long time, but it's a different world

• 31:09Speaker 03

  today. There's too much at stake. Well, number one, you've got to come up three, four, five billion US dollars for a world scale nitrogen production facility. They are not cheap. And there's no way to guarantee the margin like your investors are going to require. And then even if you do get all those funds, the very first ton that you produce is going to be years in the future. And so it's just from a financial standpoint, it's a very, very hard investment for most parties who are not already in the space to enter into.

• 31:36Shayle Kann?

  You mentioned the wrong kind of production is scaling. Setting aside the green part of it, I mean, it's anhydrous, you're saying, is like most of where the new capacity. I presume you're talking about in North America or do you mean globally?

• 31:48Speaker 03

  Yes, in North America. When you look around the world, there are some new urea production facilities that are being built. In fact, India has partnered with Russia to do a partnership facility based in Russia with the tons all flowing to India. They're trying to reduce their reliance on the rest of the world. They're doing exactly what you're talking about. They've sat there and said, listen, I know this global urea marketplace takes advantage of me every time I do one of these purchase tenders. And I'm sick of it. We know the demand's going to be there. We know we're going to need to import them. So rather than be relying on the market taking advantage of us, we'll just work with Russia, produce them there, all the tons come to us. We're good. That's something I think a lot of countries around the world need to be looking at the same thing.

• 32:27Shayle Kann?

  Okay. And then so back to North America. So we're sort of self sufficient currently on urea, right? And on hydrus? Wait, sorry, where are we self sufficient? Where do we import?

• 32:40Speaker 03

  We import a little bit of anhydrous ammonia and UAN, but we produce most of what we need. We're self sufficient on phosphate and we're With Canada, we're self-sufficient on potash. urea is the one that we have the most imports on.

• 32:53Shayle Kann?

  Okay. And I don't know. So back to a North America-centric view of things then, setting aside the global picture. Does that dire scenario where the straightforward moves remains closed for some number of additional months? Are we going to see big impacts in North America? Or is it that we're actually pretty insulated? And, you know, most of the rest of the world is going to feel the, besides, I guess, China as well, are going to feel the pain?

• 33:17Speaker 03

  Let's assume that the government is not going to come in and start restricting markets. And what I mean by that is mostly from an export standpoint. If there is no restriction to exports, if the rest of the world's dealing with a situation like phosphate supplies are incredibly hard to find. Same thing with urea. People cannot find it and the price just starts to take higher and higher and higher. Well, if our price doesn't do anything, well, that export opportunity pops up and arbitrage opportunity pops up. And we start losing supply that we can't lose. And so that's why you see our market go with the rest of the world. And people do get a little upset with their, sitting there saying, we produce most of this. Why, why is it the Henry Hub is dirt cheap? But my nitrogen price is sky high like the rest of the world. That shouldn't be the case.

• 33:59Shayle Kann?

  Because we can export. Yeah. It's kind of the same thing that is starting to happen in the, in the, in the natural gas market because of LNG exports.

• 34:06Speaker 03

  Right.

• 34:06Shayle Kann?

  Right? Like now, now, yeah. Okay. But see, what you're saying the US would, would need to do to avoid the ramifications of that is essentially replicate what China has done, which is ban or restrict exports.

• 34:18Speaker 03

  Yep. And that will work for a lot of the products. But then all of a sudden, if you start to put that sort of a program on urea, well, if you can't export, how many people are going to be willing to import product here? And we're so reliant on the imports. And it's, it's one of those things. I, I, I'm a big fan of free markets. It's cold, it's calculated, and it could not care less about your feelings. But at the end of the day, it gets the supply where it should be. The more governments start to play a role in these free markets, the worse it gets. We've seen it with India with the way that they they shield their farmers from global prices. We see it with Egypt putting a $90 ton export duty on their nitrogen products. We're starting to see more governments step in well intentioned.

• 35:01Speaker 03

  I understand why they're doing it, but unfortunately, good intentions don't always equal good results.

• 35:07Shayle Kann?

  What um what crops are most reliant on urea? Like what would be, you know, assume this happens, assume we impose an export ban or restrict exports. And as a result, we can't import as much urea until urea prices in the U.S. go sky high. Like, what would be the downstream effect of that?

• 35:25Speaker 03

  Basically, the one product that doesn't need nitrogen for the most part is soybeans. When you look at corn, corn is the one in the U.S. marketplace that we look at the most because it's the biggest demand point. It's the one that requires the most fertilizer, the most nitrogen to grow that crop. But it also makes a big difference for wheat, for cotton, for rice, for all these other crops out there. And that's the thing at the end of the day is we focus on corn here in the U.S. That's just corn is king. That's what drives our marketplaces. It's when we start to look at the rest of the world and we start talking about some of these places where like, hey, they could start having problems. Australia, if they start getting rain and they're short of urea, wheat's a big market down there, right? They produce a lot of wheat. Eastern Europe is wheat. Look at all the stuff that Asia produces.

• 36:09Speaker 03

  So now we're talking about actual food stocks that are getting impacted because of the lack of the fertilizers out there.

• 36:14Shayle Kann?

  Well, I think we've we've done a good tour of the state of the fertilizer market. It is a little scary. I mean, it feels a little safer to be sitting in North America as you and I both are at the moment. But but, you know, I think for all the conversation that I see at least around the oil market and the impacts that State of the Farm Business Closing has had on that, I see a lot less on fertilizer. It seems like it is equally, if not more impactful. So appreciate you walking me through it.

• 36:41Speaker 03

  Yeah, for sure. And that's the thing, everybody focuses on oil and gas and things like that coming from the Persian Gulf. You can't eat or drink those products. End of the day, and this is why I think fertilizer becomes such an important topic. It grows the food that we need to eat. It impacts the grocery store. So it's it's a massive, massive thing. It's nothing we've ever seen before.

• 37:00Shayle Kann?

  Scary, but super informative. Thanks, Josh.

• 37:03Speaker 03

  Anytime.

• 37:05Shayle Kann?

  Josh Linville is the Vice President of Fertilizer at StoneXp. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. This episode is produced by Max Savage Levenson. Mixing and theme song by Sean Marquand. Anne Bailey edits the video version of the show. Stephen Lacey is our executive editor. I'm Shayle Khan, and this is Catalyst.