Fertilizer Market: Staying Strong
Supplier PCS expects fertilizer demand to remain high even as supplies get a little tighter.
September 8, 2008
Editors' Note: To get some perspective on the 2008 fertilizer marketplace, CropLife® talked with David Delaney, president of PCS Sales, PotashCorp. Here, we present his insights into what's ahead for the spring season.
Q: What is the outlook for the coming spring season?
A: We expect an extremely busy season. The sub-prime financial turmoil that continues to affect the U.S. housing industry and general markets has had next to no impact on global agriculture. Strong 2007 world economic growth in the 5% range included a Gross Domestic Product (GDP) increase by 11% in China, 9% in India, and more than 6% in several other major developing countries.
Such growing economies are providing people in these countries with better incomes, allowing them to increase their protein consumption by eating more meat. This is pushing up demand for the crops that feed the animals which produce this meat.
In addition, global energy prices have skyrocketed. Crude oil recently touched $100 per barrel as production costs continue to escalate and concern grows about availability of supply from areas of political tension.
The need to improve the security of the domestic transportation fuel supply and a desire to lessen this fuel's impact on climate were major factors in the new Energy Bill receiving Pres. George Bush's signature in December 2007, which mandates production of 36 billion gallons of renewable fuels by 2022. If all of this was ethanol produced from corn, the corn requirement would be equivalent to the entire 2007 U.S. crop. However, the bill encourages future development of other renewable fuels by capping ethanol production at 15 billion gallons per year, equal to about 40% of the corn crop.
The U.S. ethanol industry must grow rapidly to meet the 2008 standard of 9 billion gallons. Beyond 2008, the new Energy Bill is expected to keep pressure on the U.S. grower for more production, which will need more fertilizer.
The rising world demand for food, feed, fiber, and biofuels has strengthened demand for crops. The January USDA Crop Report reduced the global wheat and coarse grains stocks-to-use ratio to 14.1%, an all-time low. Such tight crop fundamentals have raised USDA's latest projections for average 2008 U.S. farm prices per bushel to $4 for corn, $6.65 for wheat, and $10.40 for soybeans. In global markets, prices for commodities such as rice, palm oil, cocoa, bananas, and rubber are also very strong.
U.S. and world growers are responding to these strong prices by applying more fertilizer to increase crop yields. In many parts of the developing world, fertilizer applications are substantially below ideal levels — particularly for potash — and demand is increasing dramatically, stretching the ability of fertilizer producers around the world to respond. The result has been a tight supply/demand balance for nitrogen, phosphate, and potash.
This spring, we expect growers in the U.S. and the rest of the world to plant as much as they can and to target their fertilizer application toward obtaining high crop yields. Fertilizer supplies are expected to again be very tight.
Q: Are supply logistics expected to affect the U.S. spring season?
A: Until recently, U.S. railway capacity provided some room for seasonal surges in fertilizer requirements, but that luxury is gone. Putting fertilizer into position to meet the spring demand is now a big challenge. Producers are working closely with the rail lines and their customers to ensure the logistics run as smoothly as possible for the coming season to have product available where it is needed.
Q: Briefly, what is the longer-term outlook for agriculture and fertilizer supply/demand?
A: The improving incomes and increased demand for crops for food, feed, fiber, and biofuels discussed earlier have shifted crop consumption into a higher gear and prices upwards to a new range, and placed supply pressures on fertilizer producers. Substantially higher capital costs have delayed the installation of new global capacity and contributed to the tight supply/demand balance.
Growers around the world are benefiting from the need for more crops and the resulting higher prices. The 2007 U.S. net farm income was close to a record. Growers know what fertilizer can do for them and the strong income level is expected to allow them to apply what they need.
The outlook for global agriculture and for our industry is bright. We look forward to the challenge of supplying the products growers must have to meet the world's crop requirements.