The Hormuz Dilemma

The Iran War has brought about price and supply concerns for fertilizer just during

planting season.

We'll get the latest information on this Redox Grows podcast.

I'm Jim Morris.

And joining me is Josh Linville of Stone X and expert in this area.

And I imagine Josh, you've been very busy these days with answering questions from reporters

just like myself.

Yeah.

The last three, three and a half weeks, you know, I thought it was usually busy going

this time of year anyway.

Everybody's kind of getting to make an appropriations.

I mean, shoot where a week, week and a half away from starting a plan up around here in

North West Surrey.

But this has been hectic.

As a friend of mine told me, this is like a constant shot of adrenaline for last three

and a half weeks.

Well, I want to ask you about the latest from the Strait of Hormuz.

It was not a part of the world that many people had on their minds.

But now almost everyone in agriculture I imagine does.

It's a 104 mile stretch, really critical for fertilizer supplies.

We're talking on March 23rd because conditions can move very fast.

So give me the latest on what's happening there and how it's impacting U.S. growers.

Yeah.

This is one of those things we've always talked about in presentations and conversations.

We've always brought the Strait of Hormuz.

The reason being is when you look behind there, three of the world's top 10 global urea

exporters, that's version gold, three of the world's top 10 and hydrogen exporters sit

behind there.

One of the top five phosphate exporters, not even maybe actually sits behind the Strait

of Hormuz.

So when you look at it, it's an incredibly, incredibly important part of the global fertilizer

complex.

And in fact, I can want to put a map together years ago and it was a map of the Middle East

and North Africa because it's very closely linked regions.

Globally speaking, one out of every two tons of urea that's exported around the world comes

from that little piece of the map.

And right now, we were already dealing with a urea market that was struggling and nitrogen

market that was struggling.

Well, now instead of we're taking out a tremendous chunk of anomaly there, but also some other

global manufacturers as well.

So we've made a bad situation worse for the farmer.

I know you mentioned early on that it was perhaps under reported, but then we had a big

blast of media.

So where are we at?

I mean, what's the right amount of concern that we should have here?

We have gone from the nobody knows what fertilizer is to now everybody online at taking little

snippets and trying to make it as seen as everybody in the world is going to starve.

And as always, if you take the low end, you take the high end and the truth is somewhere

in the middle.

And that's really worth this day.

Now listen, is this a bad situation?

You absolutely right that it is.

This is a terrible situation.

Remember this whole thing even started we were dealing with the situation where China

wasn't an export into August number two, number three, exported urea and the number one

exported a phosphate in European nitrogen production was hurting because of high gas

prices.

They were producing about 75% of the normal.

And so there is going to be a shortfall.

The longer this goes on, the more tons that we are losing that needs to be flowing around

the world from the North and Hempster spring season and frankly speaking Australia's application

season.

But it's never quite as bad as everybody says it is either.

I can tell you from a North American perspective, one thing I talked about this weekend.

We're actually in good shape.

And of course people automatically took good to mean price, good as in supply, affordability

and availability are two completely different terms.

From an affordability standpoint, yeah, it's terribly overpriced.

But from an availability standpoint, based on what we think we need for imports to finish

out this fertilized year, based on what we know has come in, what we think has come through

in the market.

We only need about a million tons for April May.

But again, good and go to VAD very, very quickly.

You know, if India steps into pit tender because they've lost out on imports and their domestic

production is hurting, if this thing continues or it worsens, one million ton cumulative

for April May should be an easy thing, normal is a million and a half plus, but we're also

a massive discount to the world.

If we don't get our price right, that million ton may not arrive and all of a sudden we

can go for more fine to, oh no, we've got a big problem.

You mentioned India, what are some of the other areas in the world?

I mean, we don't have great relations with Russia or China and they're very critical

in this process too.

So your watchouts beyond the straight of her moves, what are they?

It is.

And I'm not in no particular order, right?

Number one is Europe.

Everybody's gas price in that part of the world has gone up.

Europe is absolutely no different.

Their production rate for nitrogen already been 75% normal about.

Every and half million tons of production that wasn't happening per year.

That Dutch ETF value.

Last time I looked at like $25,000 and then B2U, are we going to get that high enough to

shut off even more of European production?

We don't know that.

Russia, actually we found out overnight, Ukraine attacked, you have another Russian nitrogen

production facility.

Now, it's a 1.7 billion ton per year prilled urea plant and that's still urea that's

being lost on the global scale.

So, Russia's our number one exporter and they just had another plant get attacked.

And then you start to break it down, India is the second biggest producer of urea and

they rely heavily on LNG exports from the Persian Gulf, which aren't happening today.

I think they're going to be struggling.

Australia is in their wind up getting ready for their application season.

Of course, they're pun not intended, but they're kind of an island to their own.

They're kind of on their own part of the world.

It takes a long time for them to get their hands on stuff to actually ride.

So, they're struggling and if it goes on long enough, now you're going to start talking

about Brazil struggling if I product that's a little ways down the road, but there's depending

on how long this straight stays closed, the worst it gets and people like, well, that's

a dumb statement.

But you really start to think about it.

It's not only the loss of the urea being an export, right?

It's the LNG.

It's the sulfur.

It's all the products that come out of that body of water.

Obviously, we need to track the war situation and there's a lot of implications beyond agriculture.

That being said, what's the best case scenario?

I mean, even if the war was over very soon, it would take a while to ramp things up and

get them back closer to whatever normal is.

Yes, absolutely.

And that's one thing we've been cautioning everybody is the best day for this to have

all been done.

And the sooner the better, the best day for it to be done was yesterday.

The next best day is today.

Best day after that is tomorrow.

We need this thing wrapped up immediately, but reopening the street doesn't mean normal

to see again.

Let's just say tomorrow morning he's in this video and also in the strage reopens.

Everybody's like, oh, it's old news.

It doesn't matter.

Well, number one, how many hundreds of vessels do you got to get moving once again?

That's going to take him in.

You got to convince them it's safe passage.

Number two, Qatar and Iran both had their gas fields attacked.

A lot of damage.

Qatar actually said three to five years plus about $24, $25 billion, something like that.

About the same cost to build the plant is what's going to take to make those repairs.

You got to repair it.

Then you got to restart gas production.

Then you got to restart fertilizer production and then the thing is going to hurt the most.

All of these vessels, all the loading capability of the Persian Gulf, was not designed to

load hundreds of vessels all at once.

It's going to take a while to work through that log jam and unfortunately we don't have

a lot of loaded vessels that we see sitting behind the straight that are loaded and ready

to go out to the world.

So it's going to take a long time just logistically speaking when everything else is done, just

give everything floating again normally.

At this point, unfortunately, I don't think we're talking about weeks.

I think we're talking months and I think you can make an argument where we have seen

the price floor of nitrogen fertilizer raised at least through 2026.

So let's talk about the here and now and then we'll talk about years down the road.

First of all, for here and now, again, trying to strike the balance between breathing into

a paper bag and saying everything's completely fine.

You did say I believe but I want you to clarify this.

The supply and is not an issue but the price and availability may be of these key inputs.

Did I get that correct?

If we can get that last million ton April and May to come, I think we'll be fine.

Almost all the faucet that we need, we produce here in country, almost all the potash that

we need comes from Canada and hydrogen we produce almost all that we use.

You and we produce almost all that we use.

You're re as the one big fertilizer that we import a lot of and based on our commerce

department and forecasting, we think we've brought in about 3.8 million July through March

plus June because June's a toss month.

So we only need a million ton April May.

If we can get those tons coming, I think we're fine and I do think there's going to be

some demand destruction of these values.

The problem is, are we going to get those million tons for April May and right now this

is going to sound crazy to a lot of the audience.

We are too cheap.

Our prices are insanely high and we are cheap to the world.

In fact, we're probably in the Gulf right now.

We're probably a $70 discount for more we should be today.

Well, this will all be very interesting to follow and it changes by the hour, let alone,

the day.

Longer term, can we beef up our domestic supply?

Also reliance on fertilizer, I mean, obviously it's critical it feeds the world but there

are updated scientific methods that perhaps can help in this area.

What do you see as the keys to getting a little more stable down the road, years down the

road?

So we have to think pragmatically about what can we do today to help the next generation

and again, my multi-step has been, there's nothing we can do for the spring.

The bed is set, literally nothing from a supply standpoint that we can change.

So the government kind of caused this, right?

We struck our ran, they closed down the street because if this has been a government interaction,

I think another round of the farmer payments things we had, I'm not generally a fan of

the government payments.

This is literally an e-com 101 case study for why they should be done.

So that helps get it through this spring, this growing season.

Short term, I'm always one for cleaning up the environment, but when we have to choose

between cleaning up diesel fuel burning and stuff like that and eating, maybe we need

to rethink our approach to DEF, maybe we need to do with that regulation.

Medium term, I'd like to see some sort of a financing package to the current manufacturers.

Or something they can do to boost their production a little bit more, that maybe they're pushing

off because 8, 9, 10% interest rates, they don't want to do it.

But longer term and the ultimate answer for the long term to reduce our reliance on the

world, we've got some of the cheapest gas in the world.

We've got some of the best supplies out there.

We need to produce more production here, it needs to be a new play out with a new producer,

but there's a problem.

It's a $3, $4, $5 billion investment.

And if you've got that kind of money, why would we just go and put that into tea bills and

bonds and things like that?

Why mess with the fertilizer market?

So we need to focus on how do we bring more production online here in the States?

Well, it'll be fascinating to see how it plays out.

And here's hoping because everybody benefits from a robust agriculture industry.

Just a few comments on that one thing that I think could help are the area of bioestimulance.

They do make the traditional NPK much more efficient.

So that's something to keep an eye on.

And also in terms of the farmer payments and the short term, I spoke with Austin Scott

of Georgia 8 turn Congressman number two in the House Ag Committee.

He also brought up that idea.

So if it is needed, I'm hoping that that can happen because we need agriculture to be

strong.

Everyone prospers from that.

Josh, really appreciate your time in your comments.

Yes, sir, any day and hopefully the single will subside, hopefully it can get to easier

days.

I would love nothing more than to have a few weeks where nothing happens in the marketplace.

But until that day, we're living on drilling.

Yeah, absolutely.

Well, thank you for your insight and you can find out more from Josh at J. Linville

Fert on X.

He is an excellent follow.

Thanks for joining us.