The potash apple and the political tree
By Steve Halabura, CEO, Buffalo Potash Corp.
I had a nice, sleepy article prepared about winter, feeding the birds, walking the dog, then a soft easement into the Christmas season, mind at rest, nothing to be too concerned about.
But then…
On Monday, November 25, U.S. president-elect Donald Trump declared that upon taking office, he would immediately place “big” (i.e. 25 per cent) tariff on goods entering the U.S. from Canada and Mexico, until such time as both countries imposed stricter border controls to control the flow of illegal immigrants and drugs into the U.S.
Since then, both the Canadian federal and provincial governments have been thrown into a frenzy as they seek ways and means to deal with what seems to be a trade war that will commence immediately after Trump’s inauguration on January 20, 2025.
What is ironic is that the major North American potash producers, Nutrien and Mosaic, issued their third quarter reports during the first two weeks of November, well before the tariff tumult. In their quarterly reports, both made it clear that the global trade in potash has stabilized after Russia’s invasion of Ukraine in 2022, with demand remaining robust and prices having reached a floor.
In other words, they were planning for a somewhat settled year in 2025.
But it doesn’t look like it will play out this way.
Nutrien forecasts a global shipment range of between 71 and 74 million tonnes for 2025. U.S. demand is between 11 to 13 million tonnes of finished product, with Canadian producers supplying about 85 per cent of that amount, with the rest coming from Russia and/or Belarus. So, while a significant importer, the U.S. is not buyer number one.
However, to the American farmer, potash is a very critical strategic commodity, especially if you grow corn or soybeans. America cannot meet the demands of its farmers, as its internal production capability is very limited, well under a million tonnes.
So, potash is clearly strategic, with American farmers facing a Hobson’s Choice: do they buy their potash fertilizer from a nation with porous borders, or buy it from the Russia-Belarus cabal?
What does this mean for potash?
This isn’t about potash only, as Canada is the largest external supplier of oil and uranium to the U.S. Many Midwest refineries depend upon Alberta and Saskatchewan’s heavy oil as feedstock for gasoline and diesel; and historically, Canada has supplied most of America’s uranium since the days of the Manhattan Project.
In trying to understand this, let’s ask the question: how would a potash tariff work?
Typically, a tariff is a tax placed by a government on goods coming into a country, so in the case of potash, the American farmer would pay a 25 per cent tax on potash bought from a Canadian producer – so if the price per product tonne is US$213 per tonne (FOB minesite) as was reported by Nutrien in its quarterly report, then the price to an American farmer would be about $53, or US$266 per tonne. This is higher than the price per product tonne for Q3 2023, where it was US$250 per tonne.
Stated differently, Nutrien’s American buyers will have to pay more for its product than they did a year ago, by about US$16 per tonne.
Will there be pushback from farmers? There will probably be some demand destruction, as taught to us by the 2022/2023 price runup – if the price goes up, then demand sharply declines. I bet we will see a potash rush between now and January 20, a build-up of inventory, then cutbacks in applications in the ensuing crop years.
What is the alternative? U.S. buyers could increase their purchases of Russian or Belarusian product, but I doubt there will be a big push to “Buy Russian”. Produce more internal resource? I do not believe America has the potash resource to rapidly expand to replace even a small portion of Canadian imports. Tariffs and protectionism may spur a flurry of exploration, or rejuvenation of mature assets, and there may even be subsidization of American-produced potash. But if the gas isn’t in the tank, not much can be done.
The Canadian federal government has also socialized the concept of tariff retaliation by placing an export duty on strategic and essential commodities like energy and fertilizer, meaning that American buyers would have to pay a tax on imported product, with the extra money going to Canada rather than the U.S. government. In the end it’s the same result – a significant increase in an essential input cost.
Canadian producers could also reduce their price by 25 per cent to maintain price stability. However, the North American supply chain is already a cross-border entity – both Nutrien and Mosaic operate a unified supply change that is seamless from Saskatchewan mine to Midwest corn producer, so in the end, the buyer will pay for it anyway.
There are few palatable options. So, are tariffs significant to Canadian potash producers, or is it political noise?
Here is my take on this…
I will hazard a bold prediction, which is that the politics will NOT have a significant impact. My reasoning? Because for all its proximity, the American market is what Ken Seitz, Nutrien’s CEO, calls a “mature market”. This is not where the growth is.
Both Nutrien and Mosaic make a point in their 2024 third quarter reports to emphasize that strong growth is to be expected in global markets, especially markets such as Brazil, India, and China. For each market, there is demand by farmers for the application of more, not less, potash, and the development of more, not less, field acreage. A strong incentive for overseas growth is that the price per tonne is now affordable to global farmers and given underapplication of potash when its price was high, there is much ground to regain.
Simply put, 2025 is shaping up to be a year of record demand growth and consumption, with prices – while low compared to 2022 and 2023 – are affordable, thus driving sales.
Both Nutrien and Mosaic’s third quarter results support this conclusion.
For Nutrien, while sales price (FOB mine site) in Q3 2024 was $213/t, down from $250/t in Q3 2023, strong growth was shown by a Finished Product (MOP) Sales volume in Q3 2024 of 4.2MMt, up from 3.9MMt in Q3 2023. For Mosaic, Finished Product (MOP) Sales volume in Q3 2024 was 2.0MMt, down from 2.2MMt in Q3 2023. Sales price (FOB mine site) in Q3 2024 was $215/t, down from $266/t in Q3 2023. While prices were down from last year, demand was up, thus supporting the thesis that potash is affordably priced in the current marketplace.
I am sure we will enjoy much more political theatre in 2025, with potash making the news as a “strategic commodity”. If there is pushback from U.S. buyers that results in retrenchment of American markets, the oversupply will no doubt be shuffled to overseas markets that show increasing demand.
Keep in mind, this is breaking news, and nothing is settled. Newly inaugurated President Trump may decide tariffs aren’t the way to go, but I doubt he will do that. Or he may decide to exempt certain imports, such as strategically important commodities, and place tariffs on other imports, such as manufactured goods. The Canadian federal government is in a state of turmoil, so its plans are impossible to forecast.
I know my favourite saying is “the potash apple does not fall far from the political tree”; nevertheless, U.S. tariffs or not, global demand growth means 2025 will be a good time to be in the potash business!
‘Nuff said…
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