China’s coronavirus scare has rattled more than a few markets so far. Financial markets were on the front line, with the Dow suffering the worst single-week performance in late February since the Great Recession in 2008.
Energy futures followed suit, with crude oil tumbling below $47 per barrel for the first time since December 2018. Diesel and gasoline were also down sharply earlier following the outbreak. Grain prices were also affected, with corn, soybeans and wheat all showing sensitivity to the latest coronavirus headlines putting futures on their heels for several weeks as the markets attempted to sort out the possible global implications.
The outbreak may also create a unique set of fertilizer pricing opportunities and challenges for U.S. farmers later this spring, notes Samuel Taylor, farm inputs analyst with Rabobank.
“It’s hard to be specific for now,” he admits. “But if the coronavirus descends into a pandemic, then you start to get into a whole new range of scenarios later this spring.”
That’s particularly true of phosphate prices, Taylor says. The Chinese city Wuhan is considered by many to be “ground zero” of the outbreak and is located in the Hubei province, which has long been the country’s largest phosphate producer. In fact, it accounts for nearly 30% of China’s production capacity.
In the short term, Hubei’s phosphate production has tumbled 30% to 40% lower year-over-year. Add in transportation and other logistics challenges as China sought to contain the virus, and the product that is being produced is moving more sluggishly to port. Add it all up, and it’s reasonable to assume that prices may trend higher over the next several months, Taylor speculates.
Next, consider how disruptions from the coronavirus could affect N and K prices, Taylor says.
“China is a massive importer of ammonia, so it’s possible we could see an oversupply in the near future, which would cause N to face some downward pressure,” he says. “The same is true with potash. For now, markets remain cautious, but better prices will come if increased volumes start to materialize.”
The bottom line? It may be prudent to book P sooner rather than later, while “taking more risk” on N and K purchases by deferring purchases for now (if practical) to see if prices move lower later this spring.
Likewise, other agricultural inputs such as pesticides and fungicides also have a “huge exposure” to the Chinese market. A supply and demand shakeup could be possible, although when and how that exactly plays out is still anybody’s guess for now.
“There’s no real precedent for this,” Taylor concludes.