Fertiliser Price to Drift Lower Mid-Year

March 217 Fertiliser Price to Drift Lower Mid-Year A Silver Lining for Farmers Who Can Delay Purchases RaboResearch Food & Agribusiness far.rabobank.com Lead authors Victor Ikeda Analyst + (11) 3718 Dirk Jan Kennes Global Strategist +82 2132423 Ruud Schers Analyst +31 (3) 7121482 Kenneth Zuckerberg Senior Analyst +1 (212) 9167998 For a full list of authors, see back page Summary Farmgate fertiliser prices are likely to increase during the next three months, but will come under downward pressure once the Northern Hemisphere application season ends. This means a silver lining for farmers who can delay purchases into mid-217. Pricing context Fertiliser prices have strengthened recently particularly as we approach the North American planting season. This uptick in prices for the three major nutrients Nitrogen (N), Phosphate (P), and Potash (K) marked the end of a prolonged period of decreasing prices that started in 21, with prices in early 216 approaching levels last seen in 27/8. However, several key variables lead RaboResearch to conclude that fertiliser prices may be nearing a short-term peak, with a greater likelihood of falling rather than rising over the next three to six months. These variables include: 1. A continued increase in global capacity additions several new and mothballed nitrogen plants in the US and China, and potash mines in Canada are coming online during 217. 2. Downward pressure on raw material costs for phosphate producers providing opportunities for lower prices while maintaining existing margins. 3. A continued overall global fertiliser supply/demand imbalance this persists against a backdrop of cyclically low commodity prices, a situation which is likely to continue for a prolonged period. While we view Mosaic s recent announcement to purchase Vale s fertiliser business as a logical response to the current industry, the likely delta for phosphate prices will be negative, as the combined company should be able to sell product more competitively at least in Brazil after operations are integrated and it realises further scale efficiencies. Farmer demand Partially offsetting the negatives, farmer demand appears to be stabilising in industrialised row crop farming regions such as the US, where growers had delayed or reduced nutrient applications in 21/16 in order to conserve margins, as lower grain prices punished farmers pre-tax income. Demand from growers in Brazil and Canada should also be strong in 217, as farmer income in those regions has benefited from the positive effect of a strong US dollar on exported grain. Regional overviews When analysing fertiliser trends, it is important to consider regional differences and dynamics. Here are some short-term outlooks for three farming regions in which fertiliser purchase decisionmaking is currently top of mind for farmers: 1/3 RaboResearch Fertiliser Price to Drift Lower Mid-Year March 217

Brazil ANDA (Brazil s national fertiliser association) recently reported that 2.6m tonnes of fertilisers were delivered to farmers for domestic consumption in January 217, up over 24% compared to a year ago. The key drivers for volume growth included more favourable exchange rates, especially for nutrient purchases for second-corn crop. Looking forward three months, Rabobank expects fertiliser demand to intensify, due to both the renewal of cane fields and the start of negotiations for the next soybean season. Short-term supply chain management by the global potash industry has put upward pressure on Brazilian import prices recently. These higher prices are likely to be passed on to Brazilian farmgates in the coming stocking season. Negotiation tactics and purchase behaviour of farmers can limit the increase. Europe Global urea prices have increased in recent months, impacting urea and other nitrogen fertilisers in Europe. Because nutrient usage in western Europe largely involves nitrate fertilisers (CAN, AN, and UAN) and it is a net importer of nitrogen fertiliser, global price dynamics are affected by exchange rates. The weakening of the euro vs. the US dollar by 6% between August 216 and February 217 has created additional upward pressure on European fertiliser prices. More specifically, the nitrates premium we have observed over the past eight years (equal to the difference between urea and nitrate prices as a percentage of nitrogen value) has averaged 31%. More recently, the premium has risen towards 4%, providing farmers with a reason to negotiate. United States The Green Markets Weekly U.S. Fertilizer Price Index has gained roughly +1% since October and +2% since the trough levels seen during the summer of 216. The nitrogen expansions in the US Midwest are currently being brought on to the market. Ammonia production will precede urea and UAN production (which uses ammonia as an input) and as such is hitting the market first. This is creating a temporary oversupply of ammonia and puts significant downward pressure on the ammonia premium, ultimately benefiting farmers capable of handling ammonia. What s the impact? Over the coming three months, we expect the seasonal upward lift in nutrient prices to dissipate. The next likely major price move is expected to be to the downside. Nitrogen (N), which remains oversupplied on a global basis, will see meaningful new capacity additions come online this year due to the completion of planned expansion projects. Potash (K): although the leading distributors are talking up price against a backdrop of stable demand, Chinese and Indian price negotiations will likely result in a price ceiling for the foreseeable future. 2/3 RaboResearch Fertiliser Price to Drift Lower Mid-Year March 217

Fertiliser prices have strengthened recently Prices of the three major nutrients Nitrogen (N), Phosphate (P), and Potash (K) have strengthened recently and marked the end of a prolonged period of decreasing prices that started in 21, with prices in early 216 approaching levels last seen in 27/8. NPK fertiliser prices will continue their recent uptick in the next three months, 199-Feb 217 USD/tonne 8 7 6 4 3 2 1 - Nitrogen (Urea Black Sea Prill) Phosphate (DAP US Gulf NOLA) Potash Canada export price Source: Bloomberg, CRU, Green Markets, Rabobank 217 Although farmer demand appears to be stabilising (or even increasing in some countries), there is a continued increase in global capacity additions some new and mothballed nitrogen plants in the US and China, for example Comparison of nitrogen demand with capacity increase in urea and ammonia, 21-22f N (million tonnes) 4 13 4 3 3 2 2 1 CAGR 1.7% CAGR 2.8% CAGR 1.2% 12 11 1 1 9 21 216 217e 218f 219f 22f Urea capacity (LHS) Ammonia capacity (LHS) N-fertiliser demand (RHS) 8 Source: CRU, IFA, Rabobank 217

but fertiliser prices may be nearing a short-term peak There is a greater likelihood of fertiliser prices falling rather than rising over the next three to six months, following a continued increase in global capacity additions, downward pressure on raw material costs (phosphate producers), and a continued overall global fertiliser supply/demand imbalance. Nutrient Current situation Farmgate price outlook next three months Farmgate price outlook beyond three months Nitrogen (N) An oversupplied global market is poised for capacity additions in the US, namely greenfield capacity being developed by CF and OCI in Iowa. Despite China s 22 plan to limit growth in fertiliser applications, specific provinces may bring idled capacity geared towards exports back online and show increased domestic production activity. Flat to higher Lower Phosphate (P) Chinese exports are likely to increase towards the end of Q1 217, when the domestic application season ends. The combination of the #1 and #7 phosphate players (Mosaic and Vale, respectively) creates a dominant global leader that will be over 3% larger than #2 OCP and will likely have a pricing advantage. Flat to higher Lower Potash (K) In the short term, we see increasing demand from farmers in Brazil and Indonesia/Malaysia potentially pushing prices higher. This view is driven by positive margins for cane, coffee, citrus, and palm oil producers, along with stable demand from soybean farmers. Supply chains in the Western Hemisphere are relatively empty. Higher Lower The upcoming contract negotiations in China and India will be key. Source: Rabobank 217

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-1 Mar-1 May-1 Jul-1 Sep-1 Nov-1 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 million tonnes MOP (USD/tonne) A continued overall global fertiliser supply/demand imbalance Demand from growers in Brazil has been strong at the beginning 217. In January 217, 2.63m tonnes of fertilisers were delivered to farmers for domestic consumption up over 24% from a year ago. Strong fertiliser demand from Brazilian farmers, Jan 214-Jan 217 There seems to be room for farmers to negotiate a smaller spread, Jan 214-Dec 216 8 4 6 3 4 2 2.18 1.99 2.13 2.63 2 1 - Jan-14 Jan-1 Jan-16 Jan-17 Source: ANDA, Rabobank 217 Farmgate prices (Mato Grosso) Source: Imea, SECEX, Bloomberg, Rabobank 217 FOB prices Chinese urea production is increasing and should reach 78.7m tonnes in 22, considering the result of capacity expansions under construction and projects reported. Chinese urea production projection, 2-22e urea (million tonnes) 9 8 7 6 4 3 2 1 Others Hebei Shanxi Henan Shandong Xinjiang Inner Mongolia 23 3 4 7 2 Source: National Bureau of Statistics of China, China National Chemical Information Center, Rabobank 216 28 3 9 2 32 4 9 9 1 6 24 6 1 1 11 6 18 1 11 11 11 14 2 21 21 22e (base scenario) 22e (upside scenario) 7 8

Feb-9 May-9 Aug-9 Nov-9 Feb-1 May-1 Aug-1 Nov-1 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-1 May-1 Aug-1 Nov-1 Feb-16 May-16 Aug-16 Nov-16 Feb-17 Farmers to choose: urea and nitrates in the US and EU With global urea prices and a weakening euro pushing up prices in the EU, nitrates prices have followed. However, during the past two years, the nitrate premium has been above the average of 29-216, therewith giving farmers a possible incentive to switch to urea where possible. European nitrates in perspective, Jan 29-Jan 217 EUR/tonne 4 4 3 3 2 2 1 1 premium of CAN over urea in N value 8% 7% 6% % 4% 3% 2% 1% % Annual average CAN nitrate premium (RHS) Urea granular FCA France (LHS) CAN CIF Germany (LHS) Long-term average CAN nitrate premium (RHS) Source: CRU, Rabobank 217 Despite the recent uptick in US fertiliser prices, ammonia prices have shown a slower surge than urea and UAN, which can be illustrated by the shrinking premium, putting ammonia in a favourable budgetary position for farmers. Significant downward pressure on ammonia premium in the US Midwest, Feb 29-Feb 217 USD 2 premium (USD) 3 2 1 1 2 2 1 1 Urea granular FOB US Midwest (USD/st) Ammonia FOB US Midwest (USD/st) UAN FOB US Midwest (USD/ units) Annual premium Ammonia - UAN (RHS) Annual premium Ammonia - Urea (RHS) Source: Rabobank 217

Imprint RaboResearch Food & Agribusiness far.rabobank.com Global Farm Inputs Sector Team Dirk Jan Kennes Global Strategist dirk.jan.kennes@rabobank.com +82 2132423 Vaishali Chopra Analyst vaishali.chopra@rabobank.com +91 (124) 271317 Karen Heuvelmans Associate Analyst karen.heuvelmans@rabobank.com +31 (3) 7122668 Victor Ikeda Analyst victor.ikeda@rabobank.com + (11) 3718 Stefan van Merrienboer Associate Analyst stefan.van.merrienboer@rabobank.com +31 (3) 7121971 Ruud Schers Analyst ruud.schers@rabobank.com +31 (3) 7121482 Harry Smit Senior Analyst harry.smit@rabobank.com +31 (3) 712384 Kenneth Zuckerberg Senior Analyst kenneth.zuckerberg@rabobank.com +1 (212) 9167998 217 All rights reserved This document has been prepared exclusively for your benefit and does not carry any right of publication or disclosure other than to Coöperatieve Rabobank U.A. ( Rabobank ), registered in Amsterdam. Neither this document nor any of its contents may be distributed, reproduced or used for any other purpose without the prior written consent of Rabobank. The information in this document reflects prevailing market conditions and our judgement as of this date, all of which may be subject to change. This document is based on public information. The information and opinions contained in this document have been compiled or derived from sources believed to be reliable, without independent verification. The information and opinions contained in this document are indicative and for discussion purposes only. No rights may be derived from any potential offers, transactions, commercial ideas et cetera contained in this document. This document does not constitute an offer or invitation. This document shall not form the basis of or cannot be relied upon in connection with any contract or commitment whatsoever. The information in this document is not intended and may not be understood as an advice (including without limitation an advice within the meaning of article 1:1 and article 4:23 of the Dutch Financial Supervision Act). This document is governed by Dutch law. The competent court in Amsterdam, The Netherlands has exclusive jurisdiction to settle any dispute which may arise out of or in connection with this document and/or any discussions or negotiations based on it. This report has been published in line with Rabobank s long-term commitment to international food and agribusiness. It is one of a series of publications undertaken by the global department of RaboResearch Food & Agribusiness. 7/7 RaboResearch Fertiliser Price to Drift Lower Mid-Year March 217