Fertilizer Market: Climbing Back
Fertilizer usage is slowly recovering from 2009, but some signs of market apprehension remain.
September 9, 2010
If you were comparing the fertilizer market of the past two fall seasons to a novel, it might be called "A Tale Of One Market." Simply put, there were no best of times. There was only the worst of times.
According to the numbers, all fertilizer sectors experienced some level of decline during the past two years. On a global basis, analysts say that phosphate (P) usage dropped 10%. Potash (K) levels dipped 20%. Even nitrogen (N), which largely tends to remain more stable because of its shorter soil life cycle, was off 2%.
Following 2008, when many ag retailers were forced to write down hundreds of millions of dollars in unsold fertilizer inventory, 2009 wasn't much of an improvement. "After 30 years in the fertilizer and chemical business, we have never seen a year like this one," summed up Kathy Sims, president of Sims Fertilizer and Chemical, Osborne, KS, in CropLife's® September 2009 market review.
Based upon these dismal numbers, most ag retailers and their suppliers would have probably been happy if the outlook for fall 2010's fertilizer use rates were flat to up slightly. As it turns out, market trends are looking a little better than this. Early indications are that U.S. use for nitrogen-based crop nutrients such as urea and UAN should be up 4% to 7% vs. 2009. Domestic P shipments are expected to grow from 6.6 million tons in 2009 to 7 million tons. Meanwhile, domestic K should improve from 5.3 million tons in 2009 to 8.1 million tons.
According to Al Mulhall, senior director, market research for PotashCorp, there are multiple factors at work to explain fertilizer's recovery. "First and foremost, U.S. growers severely cut back on their P and K usage in 2008 and 2009, and many of them recognize they need to replenish their soils in 2010 or risk losing yields," says Mulhall. "In addition, crop economics have improved from the past two years and this is providing financial incentives to growers to use more fertilizer to boost their yields."
On a more indirect level, he adds, fertilizer inventories around the world have fallen the past two years, which has helped improve supplier economics, and the Great Recession has ended, which has pushed the gross domestic product (GDP) levels back into the positive range. For example, the U.S. GDP fell 2.4% during 2009. Today, it is up 3.3%.
Then there is the general feeling among marketers that things are improving. "A good indicator of the mood of fertilizer comes from the Southwestern Fertilizer Conference," says Mulhall. "In 2009, no one there was feeling that the market would perform well. But at the 2010 meeting, fertilizer buyers were very upbeat and positive that the market was improving."
According to Dave Coppess, executive vice president of sales and marketing for Heartland Co-op, West Des Moines, IA, positive feelings among fertilizer buyers for 2010 shouldn't come as a big surprise, especially considering today's modern farming practices. "The higher yields for crops such as corn that regularly occur today pull more reserved fertilizer out of the soil than ever was historically the case," says Coppess. "This means the need to replace lost crop nutrients is greater than it's ever been."
Michael Rahm, vice president/market and economics analysis for The Mosaic Co., concurs. "The plants in the field don't know anything about the price of fertilizer," says Rahm. "They just know when they are staving for nutrients and react negatively if they don't get them."
Going forward, crop mix should also help spur the fall fertilizer usage rates. Early projections from USDA have corn acreage growing slightly going into 2011 to approximately 90 million acres. Furthermore, wheat acreage should also be up (in part in response to the recent news that the Russian wheat crop is in dire straits). This could push wheat acreage in 2011 into the 58 million to 60 million acre range.
"In many ways, the outlook for fall 2010 reminds me of the way things were back before the crash of 2008," says Heartland's Coppess. "Overall commodity prices were stronger back then, but today's prices are much closer to what growers need to pull the trigger on their fertilizer use rates."
If there is a potential market killer in the background, it could be the return of high fertilizer prices. When the crash of 2008 occurred, crop nutrients prices came down quickly and have stayed relatively low. But according to many market watchers, N and P prices are starting to climb back up. This is, in part, because of a decrease in available suppliers of these crop nutrients and the fact that Brazil's usage of fertilizer is up approximately 24% from 2009 levels. This has caused some fertilizer prices, particularly P, to get close to the $500 per ton price point that many analysts say is the cut-off point for many growers.
"Growers have already shown they will not purchase some crop nutrients if that $500 threshold is passed," says Coppess. "If market shortages push us back to that point, the dynamics that made 2008 happen could come back into play once again."
Still, Mosaic's Rahm is skeptical that a 2008-type market crash could happen all over again. "I would view this as unlikely," he says. "In 2008, there were so many circumstances coming together at once, including high fertilizer prices combined with a general panic in the grain markets which sent prices tumbling. Things are much different now, and hopefully more stable to keep this from happening a second time in less than five years."
Perhaps the best way 2010 can be summed up comes from Steve Martin, general manager for Crop Production Services, Portageville, MO. "Like everyone else, I've been looking for signs that the marketplace is getting back to normal when it comes to fertilizer," says Martin. "So far, I haven't seen that normal side yet."