High oil prices do not equal high profits! Morgan Stanley decodes chemical "profit divergence": urea and potash cool down, oilseed crush spreads recover.

Title context: High oil prices do not equal high profits! Morgan Stanley decodes chemical "profit divergence": urea and potash cool down, oilseed crush spreads recover. Text: During the midday Asian session on Monday Beijing time, Brent crude oil futures and WTI crude oil futures fell back to around $103.18 and $90.31, respectively, mainly because Trump-led "Russia-Ukraine energy ceasefire" initiative sparked heated discussion in the energy trading market about cooling oil prices, and Russia's promise to increase diesel supply significantly improved expectations for refined product supply. However, the ceasefire has not yet been jointly confirmed by both sides, and the attack on Saudi Arabia and the attack on a Gulf tanker show that Middle East geopolitical risks have not fully subsided as the market had actively expected. A latest research report released by Wall Street financial giant Morgan Stanley shows that international crude oil prices have cooled from the historical peak of more than $110 in May, but the cost pressure on the agrochemical industry chain has not yet been lifted. On October 9, the crack spread of NYMEX front-month ultra-low-sulfur diesel relative to WTI fell by $6.45 in a single day to $96.80 per barrel, still at a high level. The same type of U.S. diesel futures crack spread relative to WTI once reached a record $102.20 per barrel on August 17, far exceeding the current $96.80. Therefore, although the crack spread of NYMEX front-month ultra-low-sulfur diesel relative to WTI has cooled somewhat, it remains in a historically high range, indicating that the supply tightness of diesel relative to crude oil has not been fundamentally alleviated. Against the backdrop that energy prices led by crude oil and a series of refined products such as diesel remain at historically high levels, Morgan Stanley's latest research report, "North America Chemicals: Urea Falls, Potash Lower, Phosphate Essentially Flat, Oilseed Crush Margins Mostly Improve," reveals profit divergence under high energy prices: urea and potash are under pressure from weak purchasing, phosphate is squeezed by high sulfur costs, North American nitrogen fertilizer retains the advantage of low gas prices, and oilseed processing benefits from improved spreads among meal, oil, and raw materials; weak farmer purchasing power and tightening medium-term grain inventories form opposing forces. Morgan Stanley's strategist team maintains an "In-Line" stock market investment view on the broad North American chemicals industry, and the resulting stock market investment focus is cost advantage, processing spreads, and cash returns. In particular, agrochemical investment needs to focus on the profit space between product selling prices and raw material costs, rather than broadly betting on chemical price increases. Morgan Stanley's latest tracking shows that high energy costs have not brought broad profit gains for agrochemical companies: the U.S. urea cash spread fell 3.9% month over month, and the U.S. traded market diammonium phosphate (DAP) cash spread fell sharply by 28.8% year over year, enough to show that persistently high energy costs and high raw material prices do not necessarily producer profit growth, and mainly reflect the dual constraints on profits in the entire North American chemicals sector from purchasing demand and persistently high raw material costs; at the same time, the U.S. front-month soybean crush spread rose from $2.27 per bushel to $2.50, and related crush benchmarks in Brazil and Europe also improved significantly, while some forward crush profit indicators for ADM and Bunge were revised upward in tandem. Morgan Stanley's strategist team emphasizes that whether a company can profit depends more on changes in product selling prices relative to raw material costs, as well as purchasing, processing, and hedging capabilities. In addition, U.S. agricultural giant Bunge combines improving crush business benchmarks with Morgan Stanley's "Overweight" rating, making it a specific target for observing this main line of profit repair; the key at the subsequent investment level is whether spread improvement can be converted into actual cash profits. Expensive oil does not equal higher fertilizer prices! Morgan Stanley's latest research cracks the "scissors gap" between costs and selling prices The macro environment of surging long-term U.S. Treasury yields of 10 years and above, maintained at 20-year highs and under increasingly high interest rate expectations, makes this profit divergence more investment-relevant. On October 7, the U.S. 10-year and 30-year Treasury yields intraday touched 5.368% and 5.735%, respectively, the highest levels since 2002; afterward, in official daily statistics on the 9th, they fell back to 5.24% and 5.60%, still at high levels. Against the backdrop of continued gloom from the Russia-Ukraine and Middle East wars, record-level energy inflation, strong fiscal financing needs, and a continued sharp rise in term premiums, combined with a corporate financing frenzy linked to AI computing infrastructure massively grabbing the U.S. Treasury funding pool and duration-hedging selling, long-end yields are under pressure and transmitting through global asset allocation to Europe and Japan. The UK 30-year yield rose to 6.05% on the 8th, a new high since 1998. For agrochemical companies, this both raises the financing cost of inventories and capacity expansion and weakens customers' ability to bear high-priced agricultural inputs. Morgan Stanley said short-term pricing power for urea is shifting to buyers. The research report shows that India's 1.7 million-ton tender received 5.35 million tons of offers, about 3.15 times the procurement volume; the average urea price in New Orleans fell 1.8% week over week to $433 per short ton, the Midwest fell 5.8% to $490 per short ton, and Brazil, Egypt, and the Middle East were under pressure simultaneously. However, Midwest UAN (urea ammonium nitrate solution) and ammonia prices rose 4.4% and 6.3%, respectively, so nitrogen fertilizer is not weakening across the board. Natural gas has both ammonia feedstock and fuel attributes: Henry Hub price is $3.22 per million British thermal units, and Europe TTF is $25.87, about 8 times that of the United States. North America's gas source advantage remains, but the U.S. urea cash spread has already fallen 3.9% week over week to $345 per metric ton, reflecting the combined squeeze on profits from lower product prices and higher gas prices. Morgan Stanley's strategist team wrote that potash is constrained by demand, while phosphate is trapped by high raw material costs. The report shows that Brazilian potassium chloride fell to $355-$375 per metric ton, with weak demand and ample supply in the East Asian market; Russian ports tilting toward grain shipments may limit potash exports, while Jordan's new railway plan provides about 16 million tons per year of potash and phosphate rock transport capacity. On phosphate, U.S. DAP is $803 per short ton, Indian DAP is $890-$905 per metric ton, and Brazilian MAP is $830-$850 per metric ton, overall stable; although Middle East sulfur fell $35 week over week to $825 per metric ton, it is still more than $300 higher than before the conflict. The U.S. DAP cash spread fell 28.8% year over year, and the Indian benchmark is negative $14 per metric ton: high selling prices have not translated into high profits, and sulfur prices still need to fall further before they can substantially drive profit repair, restart idled plants, and restore China's phosphate fertilizer exports. From fertilizer prices under geopolitical pressure to processing spreads: how profit improvement translates to the stock investment level Morgan Stanley's strategist team said oilseed processing is the clearer improvement direction now and over the medium term. The U.S. CBOT front-month soybean crush spread rose from $2.27 to $2.50 per bushel, mainly from soybean meal rising 2.4% and soybean oil rising 1.0%, exceeding the 0.3% increase in soybean costs; the Brazilian crush benchmark rose 25.2% week over week to about $60 per metric ton, and the European rapeseed spot benchmark rose 21.7% to about $188, with the latter also benefiting from a 5.1% decline in raw material prices. In addition, Argentine soybean and Canadian rapeseed spot benchmarks fell 5.4% and 9.4%, respectively, while Canadian futures proxy indicators rose, indicating that region and product mix determine profit differences. The report's renewable diesel model spread rose 7.8% week over week to $3.43 per gallon, also reflecting the linkage between biofuels and oilseed processing; it should be noted that the oilseed crush spread here is a different indicator from the crack spread of petroleum refineries. Farmer purchasing power and grain inventories determine whether the processing improvement and growth trend can continue. U.S. soybean harvest progress is 25%, below the five-year average of 33%, and export sales fell 47% week over week; Brazilian planting is 12%, faster than the historical average, but 87 million tons of crush capacity corresponds to a forecast utilization rate of only 73%. Under the report's full-cost model, the 2026/27 U.S. corn and soybean economic returns per acre are negative $27.5 and negative $72.1, respectively, limiting agricultural input purchasing capacity. At the same time, Morgan Stanley's global model forecasts that in the same period soybeans, corn, and sugar will be short by 4.9 million, 27.4 million, and 3.1 million tons, respectively, with inventory-to-consumption ratios declining, providing support for medium-term Shenzhen Agricultural Power Group prices. In 2027/28, soybean and corn supply and demand are expected to move toward balance, while sugar futures still have a major supply gap. The September USDA U.S. supply and demand tables, countries' fertilizer imports and exports and inventories, planted area, exchange rates, and sugar-ethanol return comparisons together form the basis for judging purchasing and processing cycles; seed, crop protection, and R&D comparisons supplement the corporate competitiveness perspective. Incremental company-level signals are mainly reflected in the processing benchmarks of Bunge and ADM. Morgan Stanley strategist calculations show that ADM's fourth-quarter and 2027 crush benchmarks improved 6.1% and 3.7%, respectively, from the prior week; Bunge's soybean processing improved 6.0% and 6.4%, respectively, and softseed processing improved 8.8% and 2.4%. These are futures-implied model indicators, and actual profit realization depends on hedging, purchasing basis, logistics, and processing costs. Combined with ratings, Bunge is a direct observation target for "processing benchmark improvement + Overweight rating"; Nutrien is also rated Overweight, but Morgan Stanley's strategist team emphasizes that the decline in fertilizer prices cannot yet support an upward revision of industry-wide profit expectations. The investment revelation given by Morgan Stanley strategists is to prioritize identifying companies with simultaneous improvement in raw material purchasing costs, product mix, and processing spreads. Among them, Bunge receives Morgan Stanley strategists' "Overweight" rating, providing a specific stock observation target for the repair of oilseed crush spreads; other companies in the U.S. stock market chemicals industry covered by Morgan Stanley with an "Overweight" rating also include IFF, Eastman (EMN), Ecolab (ECL), Linde (LIN), LyondellBasell (LYB), Sherwin-Williams (SHW), and Vylor (VYLR).