Outlook 2010: Fertilizer
Fertilizer industry insiders believe market conditions will improve in 2010 — if for no other reason than how low things got during 2009.
January 7, 2010
If ag retailers and crop nutrient suppliers were asked to pick words that best describe the marketplace they serve during the past 18 months, most would probably sound like they were reading movie posters from Irwin Allen disaster films.
"The End of the World!"
Others would sound like they were re-enacting scenes from 1970s gangster films, using choice four-letter words that aren't fit for print.
In the end, perhaps Mike Wilson, president/CEO for Agrium Inc., put it best. Speaking at the annual Agricultural Retailers Association meeting in early December, Wilson said the following regarding 2009's fertilizer market: "Our guys want 2009 behind them."
Luckily, for Wilson, Agrium personnel, and just about everyone else that makes a living from fertilizer, the calendar has turned, ushering in 2010. But given the roller coaster ride fertilizer has been on in terms of pricing and usage since the fall of 2008, will a new year bring new fortunes? Most experts think to the answer to this question is a cautiously optimistic "yes."
"Farmers increasingly want to maximize their yields as best they can, and that trend hasn't changed over the last few years," said Wilson. "We believe the future is promising, but the fertilizer market will definitely be a higher risk environment going forward than it ever has been in the past."
Maintaining Its Importance
Despite its well-publicized difficulties the past year and a half, fertilizer continues to be the most important crop input for ag retailers. According to figures compiled in the annual CropLife 100 survey, fertilizer sales represented 49% of all input revenues in 2009, down $300 million to $9.2 billion. Still, the majority of those polled, 57%, said their fertilizer sales volume in 2009 was off 1% to more than 5% vs. their 2008 totals.
In this sense, 2009 was unprecedented. "For the first time in recent memory, all three crop nutrient segments dropped use volume in 2008-09," said Wilson.
Furthermore, this pattern of decline was evident around the globe. According to statistics from the International Fertilizer Industry Association (IFA), aggregate fertilizer consumption for the year dropped 6.7% to 156.4 million tons. "Global fertilizer supply in 2009 is still affected by the volatile conditions that prevailed in 2008," said IFA in its "Short-Term Fertilizer Outlook 2009-10" report. "This year, global nutrient production and sales dropped to very low levels due to the important inventory carryovers in the worldwide distribution system. For the second consecutive year, total world nutrient production in 2009 appeared to exceed sales and consumption, translating into a significant build-up of inventories at producers' ends."
This overall market weakness impacted each of the macronutrient segments differently. For example, in the nitrogen sector, ammonia production stayed relatively stable on the global stage while urea output expanded moderately, said the IFA report. In the U.S., nitrogen fertilizer demand experienced a significant hit, declining 10% to just over 10 million tons. This marked the fourth year-over-year decrease in nitrogen fertilizer demand over the past five years and followed a 3% decline during 2007-08.
On the bright side, however, experts believe the nitrogen sector will not continue its losing ways in 2010. The IFA report predicts that global demand for nitrogen fertilizer will improve 1.6% during the year, buoyed by growing demand in South America and recovering demand in West Asia.
In North America, market observers can expect a similar rebound. "Under the current cropping expectations, we expect nitrogen fertilizer demand to grow by 8% in 2009-10," says Jason Newton, market analyst for Agrium. This should be helped by the fact that crop margins in 2010 should be higher than in 2009 thanks to lower overall input costs, growing from $1.80 per bushel to $2.35 per bushel (see graph).
P = Plus
Likewise, phosphate seems ready to recover. In 2009, worldwide phosphate acid production declined marginally, according to the IFA report, while phosphate rock dropped. This caused overall phosphate fertilizer demand to drop 10.5%.
In the U.S., demand for phosphate fertilizer dipped 13%, to 3.4 million tons. According to John Malinowski, a representative for Simplot AgriBusiness, this should begin recovery in 2010, growing 5.9%. "Demand will drive recovery with removal rates of phosphate exceeding use in much of the Corn Belt," says Malinowski.
Then there's potash. Among macronutrients, potash was the hardest hit by the global economic downturn. According to the IFA report, global potash demand fell 19.8% in 2009 to 20 million tons. "The world potash market collapsed in 2009 as international import demand dropped to its lowest level in 30 years," said the report. "Potash production plunged in 2009 due to a combination of depressed demand worldwide and large stock carryovers in key importing countries."
With nowhere to go but up, Kevin Stone, a spokesperson for Natural Resources Canada, expects the potash demand crunch of 2009 to finally end. "Demand for potash will resume to normal in 2010 and will continue to increase at the past decade's rate, about 2.5% per year," says Stone. "Potash production and trade will return to 2007's level and will continue to increase."
Agrium's Wilson agrees with these positive assessments. "We expect fertilizer demand to increase in 2010 due to restocking of inventories in some areas and the fact that U.S. growers have spent the past two years mining their soils, which will need to be replenished," he said.