Tracy Aloway: Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Aloway.

Joe Wisenthal: And I'm Joe Wisenthal. Joe, if you were a Roman general or a feudal lord and you wanted to wage war on your nextdoor neighbors, I don't know, this is completely hypothetical.

Tracy Aloway: Yeah.

Joe Wisenthal: What time of year?

Tracy Aloway: Yes. Really?

Joe Wisenthal: What time of year do you think would be the best time to actually do it?

Tracy Aloway: You know, I haven't thought about this before, if I'm being totally honest.

Joe Wisenthal: You're not sitting at home thinking about if you were a Roman general at all hours of the day.

Tracy Aloway: I'm the one guy who doesn't think about stuff like that. I don't know much about Rome. I go on.

Joe Wisenthal: Okay. So, for much of human history, if you were going to go to war, you would try to avoid certain times of year. And those times were generally the spring sewing season and the fall harvest. And there's two reasons you would do that. One is because a lot of your soldiers are actually farmers. You know, they're part-time soldiers. So, their day job is farming. And the second one is you don't want to completely disrupt your food supply. Right. That makes a ton of sense. I hadn't thought about that, but yes, makes a ton of sense.

Tracy Aloway: All right, so fast forward to 2026 and we've clearly forgotten much of human history because uh we have a USIsraeli war against Iran that is coming at perhaps the worst possible time in terms of agriculture.

Joe Wisenthal: You know, again, I hadn't thought about this at all. So I did learn over the last week, you know, when I think about the shutdown of the straight of Hormuz and so forth. Obviously I think uh oil and energy I have become aware through your writing and others that it's also a major choke point or major throughway for related food stuffs including fertilizer. I had not heard anything about the timing element however until you just brought it up just now.

Tracy Aloway: Yeah. So everyone's getting ready for spring planting at the moment. So this is precisely when you theoretically would be using a lot of fertilizer. And just in the past week or so, we've seen prices for ura, which is, you know, one of the, I guess, most popular types of fertilizer. Those have shot up like 25%.

Joe Wisenthal: Yeah.

Tracy Aloway: It's also fascinating to me. I didn't know this, but we have all these different types of ura. So you have Egyptian granular ura, New Orleans ura. We're going to talk about all of it. I've wanted to do a fertilizer episode for a long time. I want to talk about what's going on with the Moroccan fertilizer industry as well, but I am I am weirdly excited to be talking about Yura today.

Joe Wisenthal: I'm looking forward to it. Let's do it.

Tracy Aloway: All right. And we have the perfect guest. We're going to be speaking with Alexis Maxwell. She's an analyst on the Bloomberg Intelligence Agriculture team and she's been writing a lot about this. So, Alexis, thank you so much for coming on Odd Lots.

Alexis Maxwell: Oh, thank you for having me.

Tracy Aloway: Is that framing correct? Is this kind of not a great time slash the worst possible time to be driving the price of fertilizer up?

Alexis Maxwell: Yeah, definitely. I couldn't think of a worst time to have a supply side shock and resulting surge in fertilizer prices for farmers effectively just about everywhere. Second quarter is the timeline when the northern hemisphere starts their planting season.

Joe Wisenthal: What is URA?

Alexis Maxwell: Yeah. So ura is the most commonly used form of nitrogen. Crops are going to demand a variety of fertilizers, but the big three that you have to use are going to be your nitrogen, phosphate, and potachsh. And in the industry, we call it your NPKs. URA is a form of nitrogen. I think about this like a stepladder. If you want ura, the way that you get it is by starting first with natural gas. You crack it into ammonia and then you run another chemical conversion on it and you turn it into a granular product that is easy to apply, easy to transport and is about 46% nitrogen. And for those of you who've never applied fertilizer or planted crops, you probably bought some flowers at some point in your life and you get a little packet that has some like white crystals in it. Yeah. You're going to have ura in there to help your flowers grow.

Tracy Aloway: I didn't know that. That's interesting. Okay, so one thing I know about fertilizer, other than most of it smells pretty bad, but you always hear this thing about the Habber Bosch process and how the guy who basically I guess invented the way we get fertilizer nowadays is responsible both for a massive boom in the human population because everyone gets to eat more, but also responsible for a lot of death at the same time. Can you talk about I guess the origins of all of this?

Alexis Maxwell: Yeah, I think I've I'll call it one of the greatest paradoxes of humanity. You know, Tracy, I can't think of an invention that on one hand is more responsible for billions of lives, but also at the same time generates a product that is used as a weapon of war. I think some people will tell you, you know, with the global population just over 7 billion, about half of the people on the earth today are here because of conventional fertilizers. If we were to, let's just say tomorrow, stop using conventional fertilizer and we converted everything back to organic and we farmed every single acre of arable land out there. They say that the earth could really only support a population of about four billion people. So conventional fertilizer is I think the most important invention to the most number of people on this planet.

Joe Wisenthal: So wait, okay, explain to me. So ura comes from it's downstream from natural gas and so explain to me like what happens like why not ship the gas? I mean right now nothing is shipping or very little is moving through the straight but why is the process such that the first step the transformation of natural gas to ura happens at the source rather than later down somewhere else in the supply chain.

Alexis Maxwell: Yeah. So you'll find nitrogen fertilizer plants will often be colllocated with natural gas because to ship natural gas you have to chill it to very low temperatures and it's very expensive to move it. In contrast ura is it's a granular. You can ship it in a as a bulk commodity item. It's much cheaper to do it that way and you can reach a vast number of people. You'll find URA plants around the world, but most of them are really located in places with lowcost gas because this is a competi competitive commodity industry. So, you'll see these plants in places like Russia, the Middle East, the United States, and China.

Tracy Aloway: Yeah, it's it reminds me a little bit of like aluminum. Like here is this thing that it's like, okay, you could ship it anywhere in the world. It's a lot easier to ship aluminum than it is to transport electricity via batteries. So you have the aluminum processing colllocated where you have cheap electricity and then of course it's sort of trivial to move it elsewhere. How much of the world's ura is in conflictaffected regions right now?

Alexis Maxwell: I just want to add one thing too about about the ura and why we we ship it. It has a very strong seasonality. So, you know, when you run a large chemical manufacturing plant, you want to capture the economies of scale and you want to run your plant 365 days a year, right?

Alexis Maxwell: But the problem that we see in the fertilizer industry is that farmers only demand ura at a very short period of the year. Let's just say like two months of the year. So, that puts these manufacturers in a sort of classic snake and egg supply chain problem. What do you do with the material the rest of the year? So, it's much easier to ship it out than it is to store it and keep it on hand for farmers 10 months out and to take that price risk.

Joe Wisenthal: Oh, wait. Now I'm really interested. Can How storeable is URA actually? Because I think about those little packets. They seem like they could last for quite a while.

Tracy Aloway: Assume they last a while.

Alexis Maxwell: Yeah, if you have ura and you can put it in a warehouse and you can have it covered from that rain and possibly other elements, you can probably keep it on hand for at least a couple of months, probably three, four, five months. However, you know, if you have a warehouse, the way that you really maximize the value of a warehouse is by turning the inventory in your warehouse and selling that. So when you put ura in a warehouse, you're taking on price risk over the period that sits in that it will sit in storage and you're not using your warehouse for what it's really designed for. So a lot of what we see with these ura facilities, it's make and ship. There isn't a strategic reserve of ura the same way that we would have it like in oil for example which is partially why this crisis is really compounding for ura at this time of year. We don't have significant storage to replace what we're losing in the Middle East. Now the Middle East, if we look at the countries that are located along the Persian Gulf, about 45% of the world's tradable ura comes from the Middle East and about about 20% of the ammonia comes from along the Middle East as well. So if you are in the business of trying to procure a replacement for what we've lost in the Middle East, there's not really a good next best alternative at this point in time. You could try going to Russia to procure material, but a lot of the West has sanctioned Russia and their fertilizer products. You could try going to China, but China has an export ban currently on their ura fertilizers, and that's done to protect their domestic industry. and they're farmers

Joe Wisenthal: And that really kind of leaves you left over with places like Egypt or maybe the United States.

Tracy Aloway: So, is most of the ura from the Middle East? Is most of it going to Asia?

Alexis Maxwell: So, the Middle East is a great supplier for URA. They ship effectively everywhere. Every single day they're in the market. You know, a URA plant in the Middle East just to keep their inventory sort of in balance. A lot of these producers are loading one vessel and shipping it every single day. And so where the shipments go from the Middle East depends on what time of year it is. So when farmers are demanding product like European farmers or American farmers in the second quarter, you'll see more of the Middle Eastern ura go there. But in the second half of the year, you're going to see a lot more of the ura move to places like India and Brazil, places that have a flipped season to the northern hemisphere and plant at a different time.

Joe Wisenthal: Okay, this is my chance. What's the deal with fertilizer in Morocco? Because I remember when I was in Abu Dhabi, there were a lot of, you know, big national companies that were very excited about striking some sort of fertilizer deals with Morocco. what's going on there?

Alexis Maxwell: Yeah. So, Morocco is among the world's one of the world's largest producers of phosphate. So, phosphate is one of those critical NPK nutrients. Morocco is expanding their phosphate production and their low cost. And because of their location in Africa, it's relatively cheap freight to get it to move around the world. I think of phosphate to the Moroccan economy a little bit like oil to the Saudi economy.

Alexis Maxwell: So, if I'm looking at a 10-year chart of back to Egyptian, but Egyptian ura prices, they soared to over $1,100 a metric ton in the wake of Russia's invasion of Ukraine. That peak looks like around spring, April 2022. They got down to about a little under $300 a metric ton in 2024. They're close to 600 now. Before we get to the effects of what 600 a ton ura, what the impact of that is, what was the impact on the uh 2022 price spike? What were the domino effects of that massive surge?

Alexis Maxwell: Yeah. So, the 2022 price surge was really two supply side shocks. In 2021, China started their export ban on ura and phosphate fertilizers. And the importance of China to the fertilizer market, they really, it cannot be overstated. So, China is the marginal producer for ura and phosphate. So, generally speaking, when China is exporting fertilizers, prices globally will tend to fall. And when China is out of the market, prices rise to the next level of production costs. And so in September of 2021 when China slammed the door on exports, the world had to really scramble for alternatives to supply. And then when we had the Russian invasion into Ukraine in the first quarter of 2022, we saw fertilizer prices spike on top of that because the world was unclear about how we could source fertilizers from Russia. So Russia is a high volume exporter. They're a lowcost producer and Russia also is probably the really the only country that will do high volume exports of nitrogen, phosphate and podash. You name the flavor of fertilizer that you want, you can get it out of Russia. And so there was just this general surge in the industry to try to find an alternative, you know, and I mentioned earlier that when we took China out of the market, fertilizer prices had to go above the marginal producer level production costs in China and bid in new supply. And the way that the nitrogen cost curve is oriented, that meant the world had to go to Europe to find new sources of nitrogen and turn those plants on in order to meet demand. Well, at the time, the price for natural gas in Europe, which is the feed stock for ammonia and then eventually ura, was surging over $60 per mmtu. And so if you wanted to run the economics of what it costs to make ammonia, it's a very easy back of the napkin math to do this. It takes about 34 to 36 mm BTUs of natural gas to produce one ton of ammonia. But if we needed 36 mm BTUs to make ammonia and I'm paying $60 for natural gas, I'm looking at an ammonia price that's over $2,100.

Joe Wisenthal: So, if I'm a farmer in the US right now and I am getting ready to plant spring wheat, what am I doing when I, you know, I'm hopefully I have a Bloomberg terminal. That would be nice as a farmer, but I'm looking at the chart of the price spike in something like URA. What am I thinking to myself in terms of offsetting this cost?

Alexis Maxwell: Yeah. So, farmers will have probably four options or decisions that they can make at this point. And I will tell you, I do think that US farmers are probably best poised to weather this storm compared to farmers in let's say the European Union or India at this point. If you're a farmer, what you can choose to do is you can reduce your application rates. You can switch what you're planting, let's say from corn to shift into soybeans, which demands significantly less amounts of nitrogen. The third option is as a US farmer, you can switch among your nitrogen products. And then the last worst option is just not plant at all.

Tracy Aloway: And what do you see happening right now? There was a headline, by the way, earlier that I saw where already senators in DC are hearing from farmers talking about wanting to get relief from wanting to get some sort of bailout. It's not as extreme, but you know, the price is to some extent global. So we see the New Orleans price that's shooting up too. That's at 570 570 pounds a

Alexis Maxwell: Yeah. So this is really all you know as in economics this is all really relative. So I want to just give some context as to why even though you know Egypt URA is I think today close to $700 still below about one-third below the 22 price spike what's happening now is probably the worst it's ever been for farmers looking to buy nitrogen and we measure that in the industry by just looking at the ura price to the crop price ratio.

Joe Wisenthal: Oh that makes sense.

Alexis Maxwell: Yeah it's all relative. you know, that last incremental ton of nitrogen is going to give you a yield bump. So, you kind of you want to run the economics and the aronomy on if I spend a little bit more on my nitrogen, am I going to get that yield bump? So, I need to know what the price of the commodity is. And if I were today to look at the ura to corn price ratio,

Joe Wisenthal: Yeah,

Alexis Maxwell: last week it was at 124. The highest it's ever been is 143. And with the price surge that we're seeing again this week, I expect, you know, once we have prices settle on Friday, that we'll set a new record for the most expensive that URA has ever been to a corn farmer.

Joe Wisenthal: Tracy, this is going to make a good chart in the newsletter because I I just charted it as as our guest was talking about it. And yes, we are very close to so even though on a the pure gura price, not necessarily at all-time highs, but relative to corn, we are very close to alltime highs there. Yeah, I think this is important. So, the other thing I wanted to ask is you you've heard I mean it's a running joke on this show that farmers are always complaining about something, but one of the things they've complained about is fertilizer prices. Even before, you know, the Iran situation, even before the 2022 price spike, there's been some grumpling. What's going on in the structure of the market that seems to make fertilizer prices an issue for the farming industry?

Alexis Maxwell: Yeah. So the farming industry in the US right now is margins are incredibly thin. If we look at like for example the difference between what farmers pay for their inputs versus the prices that they get for their agricultural products, it hit a record negative spread in January. There's a lot of price pain out there in the US farm economy and we're seeing chapter 12 bankruptcies. Chapter 12 is a specialized form of bankruptcy for farms and fisheries starting to pick up here in 2025. So, I'll say the economic pain is real. And if you look at fertilizer prices, they tend to cycle just like all other commodities. The last time we really saw an amplified price cycle for fertilizer was 07 and '08, kind of in line with the financial crisis. But what makes this different is in contrast to I think it was a more of a demand cycle in 07 and08 that caused the amplification. But this time this is a supply side crisis. You know I think about this as like a three-legged stool. We've taken China out of the market. Russian supply seemed difficult to acquire. And now you throw in we have this global choke point for ura in the straight of hormuz where almost let's say you know 40% of the nitrogen that we need is you can't get it. Those are the supply side drivers that are keeping fertilizer prices at midcycle level for much longer than many in the industry would have expected when this started in 2020 2021.

Tracy Aloway: When you say you can't get it, do you foresee a situation where you can't get it at any price basically?

Alexis Maxwell: Oh, Tracy, my my ecom professor would roll over in his grave if I ever said that, but I'll just kick it back to, you know, ha applying fertilizer. You know, you have to do it when the crop wants it. So, that's really pre-planting and during like early emergence of your crop. It's, you know, having a kid and needing to feed them, you know, vitamins at at a certain point in their as they start to grow.

Joe Wisenthal: That's right. Everyone knows after they're three years old, you don't have to feed them anymore. They fend for themselves.

Alexis Maxwell: They're good. They're good at that point.

Joe Wisenthal: Yeah. You're on your own. Go fix me a hot dog. Yeah. So, if you miss the ura application window, you It's really difficult to go back or nearly impossible to go back and apply nitrogen. You just will have to take the yield penalty.

Tracy Aloway: Yeah, it's interesting. You know, again, just looking at the pure URA chart, you mentioned, you know, some of the legs of the stool have already been kicked out. So, the lowest it got after the Ukra invasion of Ukraine was still not anywhere close to say pre- Ukraine or pre- pandemic levels at all. So, we've shifted into a higher regime generally even before the war in Iran. So when we're talking about oil markets, we know that there's infrastructure that's already been destroyed. So even if the straight of Hormuz is opened in short time, there's infrastructure that's been damaged. And of course, we know wells have been shut in because they're running out of uh storage space for oil. What do we know about the fertilizer infrastructure period? say you know the damage that's been done and so like you know say there's a miracle and suddenly things started flowing through the straight of Hormuz immediately tomorrow which doesn't seem very likely what do we know just about the condition of the infrastructure and how long it would take things to get moving again

Alexis Maxwell: Yeah that's a great question I think we'd be looking at least two weeks before you'd start to see fertilizer come out along the the straight again we haven't seen much in the way of these facil facilities being attacked directly.

Tracy Aloway: Okay.

Alexis Maxwell: And so a lot of the manufacturing sites have shut down preemptively. And so then to restart a fertilizer facility, it's going to take two or three days of a natural gas burn just to get the plant to where it is producing ura again. And then you have to load a you have to bring a vessel in. You have to load the vessel. You have to get it back out. And you know, nobody at this point has any clarity on when the straight reopens. Who gets first priority? Is it oil or is it fertilizer? I'm just going to guess oil. We'll get the priority. So, you know, once this has a clear end date, at least 2 to 3 weeks before we see fertilizer come back out to the mills.

Tracy Aloway: So obviously everything is still in flux and I should just add our standard disclaimer which is we are recording this on March 10th and who knows what will happen by the time this episode comes out but how do you anticipate this actually feeding into food prices? I mean, this is the big question. So, people use less fertilizer, you get lower yields, supply goes down. I assume prices go up, or you have farmers that continue to use fertilizer, but it costs them a lot more, and so they have to offset it with higher prices, and prices still go up.

Alexis Maxwell: Yeah, I'll think about this in sort of a time frame of when we might start to see some of this like flow through the system. It's the relationship between fertilizer prices and when that piece of food arrives on your dinner plate. There's a lot of decisions and price inputs to how that all works. But so what we're thinking right now is we'll see that in fact the market's calling for a reduction of nitrogen application rates here in the US. And so I'm looking at what I might expect for US corn yields to be this year. Last year we had a yield of 186 bushels per acre. I'm thinking at this point that we could see the US corn yield be 182 bushels, but again, we still have a long road of production potential ahead of us. A lot of the corn yield depends on what the weather looks like during the summer season, how soon farmers can get out there and plant. And then also, you know, the thing about commodity prices is they'll snap up and then they at these levels, you know, I mentioned earlier this is a record. We were expecting to see a record ura to corn price ratio that will destroy a lot of ura demand. And so if the straight reopened next week, you know, you would see ura prices sort of snap back to before maybe you would see them snap back to where they were before this war. So thinking about like food production and the relationship with this. So we're planting now in the spring. I'm expecting lower yields for corn, for example. That corn isn't going to get harvested until probably about September or October of this year, and then it'll have to move to, let's say, a milling location or an ethanol plant. Lower yields is going to be something that'll move through the food production system over a time span of about a year or two.

Tracy Aloway: All right, Alexis, thank you so much for coming on Opt and finally letting us talk fertilizer. I wish it was under better circumstances, but this was absolutely fascinating. Thank you.

Alexis Maxwell: Well, thank you for having me. It was my pleasure.

Tracy Aloway: Joe, I'm never going to look at one of those little packets that comes with flowers, fresh flowers, the same way again.

Joe Wisenthal: No, I I had I never used those. I No, maybe I maybe I put them in the water. I had no idea. But no, that was super interesting. And the sort of the money chart for me was really seeing that ura to corn futures ratio, which is very clean and very elegant. And you can just see farmers are how much stress they're already feeling and then how much additional stress they're seeing just in the last weeks. But there haven't really been good conditions for fertilizer costs really since the pandemic. It has seemed like in particular since the war in Ukraine started this structural shift in supply.

Tracy Aloway: Yeah. So there are a few things that stood out to me. So number one um tough times for farmers and it seems like in all these instances the pain usually falls on the smaller scale farmers versus the big ones. I imagine in this particular situation if you're a huge farmer out in Iowa or wherever you probably have enough scale to ensure that you're still getting some sort of fertilizer. those business relationships are going to help you versus say a smallcale farmer who's like making these decisions on an individual basis. The other thing that stood out to me and we've heard this before in our oil discussion with Rory Johnston this idea that well again the big fare better so the US is probably going to make it out better than say in India which needs nat gas from the Middle East in order to make its own fertilizer. And then the other thing that stood out to me was that idea of storage. So

Joe Wisenthal: Yeah,

Tracy Aloway: we know that in commodities storing something can cost a lot of money. And it seems like fertilizer in particular hasn't really been stored in the way maybe some other metals have been because you know most of the time you only need it I guess twice a year. You know once in the southern hemisphere and once in the northern hemisphere.

Joe Wisenthal: Yeah. It does not seem as though the supply chain has been optimized for sort of long-term accumulation. There aren't strategic ura reserves the way there are with other commodity reserves. It's really going to be a mess. And you know that was when we talked to Rory Johnston about energy and you know again in the US it's going to show up mostly at higher prices in the pump. Elsewhere it's going to show up as literally an unavailability, a reduction in the amount of energy, the amount of oil that's capable. It's really disturbing to think like Yeah. I mean, no one wants to pay higher groceries, but it's a lot better than outright famine, which is the risk when you do such a massive shock to food supply.

Tracy Aloway: Yeah. All right. Shall we leave it there?

Joe Wisenthal: Let's leave it there.

Tracy Aloway: This has been another episode of the All Thoughts Podcast. I'm Tracy Aloway. You can follow me at Tracy Aloway.

Joe Wisenthal: And I'm Joe Weisenthal. You can follow me at the stalwart. Follow our producers, Kerman Rodriguez at Kerman, Dash O Bennett at Dashbot, and Kale Brooks at Kalebrooks. And for more OddLots content, go to bloomberg.com/odlots, where the daily newsletter on all of our episodes, and you can chat about all of these topics 247 in our Discord, discord.gg/odlots.

Tracy Aloway: And if you enjoy OddLots, if you like it when we talk fertilizer, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely adree. All you need to do is find the Bloomberg channel on Apple Podcast and follow the instructions there. Thanks for listening.

Tracy Aloway: Yeah.