Agricultural Sciences Sector Time to Play that Broken Record – Fertilizer #s Still Far Too High as Supply Driven Dynamics Continue to Offset 2020 Demand Optimism Fertilizers | Sector Review ■ Lower Fertilizer Stock Prices are Justified – Not Quite Yet a Buying Opportunity: In our view, the recent pullback in fertilizer stocks is justified on lower N&K price prospects for 2020 (expectations for P were crushed ~6 months ago). We fully acknowledge downside may be limited at this point, so we simply flag current levels aren’t the “coiled spring” many bulls are expecting. Our base reasoning spans across the following subjects: (i.) cost curve deflation, (ii.) elevated regional inventories, (iii.) new supply ramps in N&K, and (iv.) elevated demand expectations. Two Chinese demand catalysts often cited by bulls are no longer 2020 themes: including the prospect of the initial attempt at the implementation of E10 and a “V-shape” yr/yr recovery in feed markets due to easy comps following ASF. Bottom line – we still feel being selective is warranted given our sense of ongoing volatility. ■ Prefer FMC vs. CTVA; Best Risk/Reward in Ferts Remains MOS: FMC remains our top pick in the ag space given our conviction in #s, portfolio balance (diversification) and its ability to drive margins higher in ’20. We expect a favorable progression in yr/yr results for CTVA, but believe buy-side expectations are too high while #s still must adjust lower. We view global N-P-K demand outlooks as relatively stable (Chinese K inventories still an “x” factor), but stress supply-side challenges still exist across all 3 macro nutrients. However, from a risk / reward perspective we still prefer MOS vs. CF / NTR on the back of P strip margin improvements (reduced Chinese exports, DAP rebounding, lower S prices, etc.). ■ Low Feedstock Prices are Flattening N Cost Curve, Plenty of New Supply ’19-‘23: Recent declines in global gas prices are still pressuring the N cost curve, but we continue to monitor Chinese anthracite pricing + the RMB (China remains the marginal cost exporter). Our N est’s are now firmly at the low end of our LT $230/t-$260/t FOB range for major exporting regions, yielding a US NOLA equivalency of $225/st - $255/st. We respectfully disagree with the notion of “no new N supply until post ’22” thesis given our view >10mmts (up to ~20mm) are poised to come online in the ~5 year period ’19-’23. The increase in supply availability spans two themes: (i.) new project start-up / ramps (incl. facilities we est. are >90% complete), and (ii.) Eastern European re-starts due to improving gas availability (Romania, etc.). There are also new project announcements applicable for the period post ’23, for which the traditional “50% / 50%” probability rule is appropriate. There will be supply offsets due to Iran, Brazil and Bolivia in the interim, but we stress that the market still appears relatively well supplied; Latam outages are due to lack of feedstock. ■ Curtailments are Saving P Prices (for now), But K Markets are Still Difficult: There is preliminary evidence that OCP and MOS’ curtailments are gradually improving P market prospects, but K markets still appear to be re-adjusting lower due to lackluster demand, the expectation of growing Russian supply and lack of a Chinese contract (port inventories still >3mmts). CSe now reflect ’20 K demand of ~64-66mmts, -3% vs. our prior mid-point to reflect lower Chinese demand, a sluggish SE Asia and a slightly lower Indian import #. ■ New 2020 Est’s and PTs: FMC ($6.70, new TP $110), (MOS ($0.95, new TP $25), CTVA ($1.50, TP $29), NTR ($2.35, new TP $50), CF ($1.65, new TP $42). 28 January 2020 Equity Research Americas | United States DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Research Analysts Christopher S. Parkinson 212 538 6286 christopher.parkinson@credit-suisse.com Chris Counihan 44 20 7883 7618 chris.counihan@credit-suisse.com Victor Saragiotto 55 11 3701 6303 victor.saragiotto@credit-suisse.com Amanda Foo 603 2723 2089 amanda.foo@credit-suisse.com Gerald Wong, CFA 65 6212 3037 gerald.wong@credit-suisse.com Lucas Beaumont 212 325 2458 lucas.beaumont@credit-suisse.com Kieran de Brun 212 538 3440 kieran.debrun@credit-suisse.com Harris Fein 212 538 3064 harris.fein@credit-suisse.com 28 January 2020 Agricultural Sciences Sector 2 Table of Contents Global Ag Market Updates 4 Global Nitrogen Overview 7 Global Nitrogen Price Outlook 9 Key Nitrogen Input Prices 11 Global Potash Overview 13 Global Phosphates Overview 17 Palm Oil Sector Overview 20...
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