A New Cycle For Fertilizer Demand

Since the end of 2009, the fertilizer market has enjoyed great success in terms of demand from grower-customers. But because of a series of marketplace trends, this high growth cycle could be slowing down significantly in 2014.

This was the overall message delivered to attendees at the recent Fertilizer Outlook & Technology Conference, held this past November in Tampa, FL, and co-sponsored by The Fertilizer Institute and the Fertilizer Industry Round Table. Speakers at the event warned that several years of prosperity — particularly in the corn market — have helped boost overall fertilizer demand, but now might be in for some major changes as the 2014 season gets underway.

Before looking forward, however, a look back is in order. Starting in 2010, the nation’s (and world’s) demand for corn has been on a cycle of steady increases. Driven in part by the EPA’s ethanol blend requirement, growers have planted more corn each season since that time, topping 96 million acres in 2013. Better still for the market, the nation’s corn harvest has remained in step with overall demand because of uneven weather events (severe droughts followed by excessive rains). This has translated into corn commodity prices in the $7 per bushel range for much of the past three years. Furthermore, since corn requires lots of fertilizer to boost yields — and higher commodity prices have meant more money in grower pockets — ag retailers have benefited as well.

But the ag marketplace seems to be entering a new cycle. Despite two difficult weather years, market watchers report that the nation’s corn harvest in 2013 topped 14 billion bushels. This was more than enough to make corn demand and should for the first time in several years increase the nation’s carryover amount.

As a result, commodity prices for corn have been steadily dropping. From $6.79 per bushel during the middle of 2013, today’s corn prices are at $4.22 per bushel. “Commodity prices are down 20% to 40% from 2012,” said Rich Pottorff, chief economist for Doane Advisory Services. “This probably means farm income will take a hit as well, down approximately $5 billion in 2014.”

Tied To Ethanol

According to Pottorff, the reason for this decline in corn fortunes ties directly back to the one thing that has largely driven demand forward the past few years — ethanol. Beginning in 2010, the EPA has steadily increased its ethanol blend requirement for gasoline producers. This has boosted corn demand accordingly.

However, since 2012, gasoline consumption has been on the decline (134 billion gallons were consumed that year, say market insiders), increasingly pushing the ethanol requirement close to the “blend wall” — a level that gasoline producers say can’t be maintained with current consumer demand.

As originally written, says Pottorff, the ethanol blend mandate for 2013 was 13.8 billion gallons, increasing to 14.4 billion for 2014. But with the reduction in gasoline consumption taken into consideration, EPA has proposed reducing the ethanol blend mandate for 2014 to 13.2 billion gallons (although this change could end up being challenged in court).

“Let’s do the math then,” he said. “Right now, the biggest use for corn is feed, requiring 5.2 billion bushels. Ethanol is second at 4.9 billion bushels. Exports take up 1.7 billion bushels, with other uses for corn eating up the remaining 1.5 billion bushels. Put together, this means there will be demand for 13.3 billion bushels in 2014, which would translate into 88 million acres of planted corn. Right now, projections are there will be 92 million acres of corn planted in 2014, meaning we would need export demand to increase to 2.3 billion bushels to take up the surplus. Otherwise, there will be a lot of corn looking for a market at the end of 2014, which will undoubtedly push commodity prices down even further.”

Because of these factors, Pottorff predicted that corn production profits will get “very slim” in 2014, making growers more price conscious than they’ve been in several years. “They may cut back on some inputs,” he said. “The U.S. market for fertilizer, corn seed and pesticides is going to shrink — and probably pretty significantly. The bottom line is this: Ethanol growth for corn is largely at an end.”

The Nitrogen Impact

Obviously, nitrogen-based fertilizers could be most severely impacted by any disruption in the corn market. As Doug Hoadley, director of agri-business analysis for CF Industries, Inc., pointed out, corn accounted for 51% of nitrogen fertilizer usage during 2013. And if there are indeed 92 million acres of corn planted in 2014, nitrogen application rates should remain stable to slightly higher.

“Right now, we are anticipating nitrogen fertilizer demand next year to be 13.3 million tons, down approximately 0.7% from 2013,” said Hoadley. “Ammonia demand should be up 1.2% to 3.5 million tons, but we forecast urea and UAN demand to be down 5.4% to 3.7 million tons and 2.1% to 4 million tons, respectively.”

What could help boost these figures even further, he added, is the fact that natural gas prices have remained low. Another speaker, John Harpole, president of Mercator Energy, told attendees this indeed should be the case during 2014, thanks largely to the expansion of shale gas drilling operations. “Shale gas drilling has grown from 4% of natural gas production in the U.S. a few years ago to 42% today,” said Harpole. “Right now, I don’t see us ever getting above the $5 shelf for natural gas. Instead, prices will remain in the $3.50 to $4.75 range, which should encourage more investment in nitrogen fertilizer production.”

In addition to nitrogen fertilizer overall demand dropping slightly, phosphate demand is also expected to be off some during 2014. According to Mike Rahm, vice president market & strategic analysis for The Mosaic Co., the North American marketplace is projected to use 9.8 million tons of phosphate this year, down from 10.1 million tons used in 2013.

“This drop will mirror the drops taking place in the main commodities markets, which are down 40% from their 2011 peaks,” said Rahm. “We however are hoping this will be the phosphate market’s bottom and it will begin to recover in the coming years.”

Likewise, the potash market remains challenging for producers. According to Paul Burnside, principal consultant, potash for CRU International, the U.S. market for potash remains flat and likely won’t pick up during the new year. “The takeaway is that the U.S. crop mix could help potash demand, but probably won’t in 2014,” said Burnside. “The fall application rates for 2013 were better than in 2012, but below the 2011 rates.”

He further added that because end users of potash are buying on an as-needed basis, producer and ag retailer inventories have continued to climb, eroding prices in the process. “The current trend of capacity growth without demand growth is not sustainable,” warned Burnside.

Topics: ,

Leave a Reply

Fertilizer Stories

FertilizerKoch Agronomic Services Launches N-TEGRATION Technology
July 27, 2015
Koch Agronomic Services, LLC (KAS) has launched  N-TEGRATION Technology, a process technology platform designed to enable production of enhanced efficiency fertilizers at Read More
FertilizerWSJ: Cf Industries Exploring Merger With Dutch Chemical Company
July 23, 2015
U.S. fertilizer maker CF Industries is in advanced merger talks with Amsterdam-listed chemical company OCI NV, the Wall Street Journal Read More
Crop InputsH.J. Baker Launches Fall Sulphur Campaign
July 22, 2015
H.J. Baker has launched their “Keep Your Future Green – Use Tiger This Fall and Win Big” campaign. The campaign Read More
FertilizerNew Research Could Lead To Less Reliance On Nitrogen, Eliminate Runoff
July 21, 2015
Farmers often are required to apply nitrogen fertilizers to their crops to maintain quality and improve yields. Worldwide, farmers used Read More
Top 100 Articles
CropLife 100Pinnacle Purchases California-Based Specialty Crops Retailer
July 20, 2015
Pinnacle Agriculture Holdings has successfully acquired California-based NH3 Service Co.  Operating as part of Pinnacle’s Performance Agriculture brand, the new locations Read More
Asmus Farm Supply liquid fertilizer facility features 20,000 square feet
CropLife 100Slideshow: Asmus Farm Supply Shows Off Its New Liquid Fertilizer Facility
July 15, 2015
Asmus Farm Supply, Rake, IA, recently added a new liquid fertilizer facility to its company operations. The new liquid fertilizer Read More
CropLife 100Wilbur-Ellis Feed Division Facilities Receive Safe Feed/Safe Food Certification
July 13, 2015
Wilbur-Ellis Co.’s Feed Division, a marketer and distributor of value-added feed ingredients for the aquaculture, livestock and pet food industries Read More
CropLife 100BRANDT Expands To Brazil With Acquisition
July 8, 2015
BRANDT has acquired a majority interest in Target Brasil Fertilizantes Ltda. through its Brazilian subsidiary. Target Brasil manufactures, distributes and Read More
Milan Kucerak, president/CEO, West Central
CropLife 100West Central Cooperative And Its New President Are A Match Made In Deviation
June 29, 2015
To appreciate just how unique West Central Cooperative is in the world of ag retail, an observer need only consider Read More
Winter Wheat
CropLife 100South Dakota Co-op Member Owners Vote No On Unification
June 26, 2015
The Boards of Directors for North Central Farmers Elevator (NCFE) and Wheat Growers (WG) have announced that member-owners have voted Read More
Latest News
StewardshipOhio Water Quality Project To Determine How Much Phosph…
July 27, 2015
Researchers with the College of Food, Agricultural, and Environmental Sciences at The Ohio State University are looking for farmers in Read More
FertilizerKoch Agronomic Services Launches N-TEGRATION Technology
July 27, 2015
Koch Agronomic Services, LLC (KAS) has launched  N-TEGRATION Technology, a process technology platform designed to enable production of enhanced efficiency fertilizers at Read More
HerbicidesExpert: IARC Herbicide Classifications Leading To Confu…
July 24, 2015
Few people in the crop protection industry had heard of the International Agency for Research on Cancer (IARC) before this Read More
ManagementFCI Trade Summit Update & Precision Tank Turns 50
July 23, 2015
Editors Dave Frabotta and Eric Sfiligoj discuss the upcoming FCI Trade Summit in Las Vegas, NV, and how Precision Tank Read More
Palmer pigweed seedhead in cotton
HerbicidesUSDA Deregulates Dow AgroSciences’ Enlist Cotton Trait
July 23, 2015
The USDA today issued its decision deregulating Dow AgroSciences’ Enlist cotton trait in the U.S. The USDA has now completed its Read More
Industry NewsVerdesian Life Sciences Showcases Versatile Product Por…
July 23, 2015
Technology has revolutionized agriculture by bringing farmers, retailers and distributors to the forefront of the digital age. To meet the Read More
FertilizerWSJ: Cf Industries Exploring Merger With Dutch Chemical…
July 23, 2015
U.S. fertilizer maker CF Industries is in advanced merger talks with Amsterdam-listed chemical company OCI NV, the Wall Street Journal Read More
HerbicidesNufarm Releases New Panther SC Herbicide
July 23, 2015
Nufarm has announced the availability of new Panther SC herbicide. Panther SC is the first liquid formulation of flumioxazin available Read More
EquipmentFarmLink Launches Farm Equipment Sharing Program
July 23, 2015
FarmLink has introduced a new online farm equipment sharing community – MachineryLink Sharing – leveraging this new economy business model Read More
HerbicidesCould The South’s Most Troublesome Weed Represent A Thr…
July 22, 2015
Palmer amaranth is undoubtedly the most troublesome weed in the southern United States, taking a devastating toll on both cotton Read More
Industry NewsH.J. Baker Hires New Director Of International Sales
July 22, 2015
Global Agriculture firm H.J. Baker announced today that Steve Langley has joined the company’s Crop Performance Division and Animal Health Read More
InsecticidesSyngenta Recommends Soybean Scouting To Prevent Economi…
July 22, 2015
Proper soybean insect pest control begins with scouting. As the warm weather continues, Syngenta encourages growers to implement a scouting Read More
Crop InputsH.J. Baker Launches Fall Sulphur Campaign
July 22, 2015
H.J. Baker has launched their “Keep Your Future Green – Use Tiger This Fall and Win Big” campaign. The campaign Read More
Central Valley Ag Randolph, NE
Retail FacilitiesStueve Construction Builds Fifth Facility For Central V…
July 21, 2015
Central Valley Ag partnered with Stueve Construction Co. to successfully design and build its Monroe, Oakland, Wakefield and Royal hub facilities Read More
FertilizerNew Research Could Lead To Less Reliance On Nitrogen, E…
July 21, 2015
Farmers often are required to apply nitrogen fertilizers to their crops to maintain quality and improve yields. Worldwide, farmers used Read More
Seed/BiotechMonsanto Targets Farmers, AFBF In Syngenta Takeover
July 21, 2015
As Monsanto Co. struggles to convince rival Syngenta AG to discuss a potential merger, the seed and agrochemical giant is Read More
CHS Building exterior
Retail FacilitiesSackett Helps CHS Expand Blending Facility, Improve Acc…
July 21, 2015
CHS needed a blend plant that could vastly expand their capabilities in St. Charles, MN. The A.J. Sackett & Sons Read More
Industry NewsH.J. Baker Adds To HR Team
July 21, 2015
H.J. Baker announced today that Barbara Sullivan has joined the company’s executive team as Vice President of Human Resources. Prior Read More