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

FertilizerThe Fertilizer Institute: New President, Renewed Energy
February 3, 2014
Chris Jahn relishes the opportunity to lead the organization through the challenging times ahead. Read More
FertilizerA New Cycle For Fertilizer Demand
January 2, 2014
Changes in the corn market could have a major impact on the crop nutrients sector in 2014, say experts. Read More
FertilizerOSHA Hammers West Fertilizer With Over $100K In Fines For April Explosion
October 10, 2013
The Occupational Safety and Health Administration is fining the parent company of the West Fertilizer plant, Adair Grain Inc., $118,300 for 24 violations. Read More
FertilizerTFI Appeals Chesapeake Bay TMDL Ruling
October 10, 2013
The Fertilizer Institute joined a coalition appealing a U.S. District Court ruling on the Chesapeake Bay Total Maximum Daily Load (TMDL) for nitrogen and phosphorus. Read More

Trending Articles

Green Valley Ag facility
Retail FacilitiesGreen Valley Ag Adopts A.J. Sackett’s Precision Fertilizer Blending® Technology At New Facility
July 8, 2014
Sackett's Precision Fertilizer Blending® Technology is making huge strides around the world. Green Valley Ag adopts the technology at its new facility to support its advancing agronomic needs. Read More
Retail FacilitiesWaconia Manufacturing Builds Facility Designed For Speed, Efficiency
July 7, 2014
To make its new hub facility more efficient, Cooperative Elevator enlisted the aid of Waconia Manufacturing. Read More
EquipmentSummer Show Preview 2014: Superior Sprayers Take The Field
July 3, 2014
In this final installment of our coverage of the major categories of Big IRON that retailers can expect to test-drive at this summer’s events, here is a look at 19 sprayers. Read More
Scouting a soybean patch at Green Valley Ag.
EmployeesCropLife Compensation Survey: Battling Talent Drain
July 2, 2014
Retailers too often lose employees to companies outside of agriculture, while recruiting efforts are most often limited to competitors and other ag-focused organizations. Read More
HerbicidesDow AgroSciences Introduces SureStart II Herbicide
June 16, 2014
The enhanced formulation has improved viscosity and increased stability under heat and controls more than 60 high-anxiety grasses and broadleaf weeds found in corn fields. Read More
HerbicidesBASF Investing $270 Million To Expand U.S. Herbicide Production
June 11, 2014
BASF has invested more than $270 million to expand herbicide production capacities in the U.S., including more than 20 new products to be launched over next two years. Read More

Latest News

StewardshipMonsanto Joins Panel Of Innovators To Advance Research …
July 30, 2014
Monsanto Co. and The Climate Corp., its division, recently joined a roundtable of experts at the White House to share ideas and research approaches to help the world’s farmers manage and adapt to the impact of climate change on the global food supply. Read More
Crop InputsSoybean Checkoff Produces Big ROI
July 30, 2014
Under the soy checkoff program, all U.S. soybean farmers contribute a small percentage of their gross soybean sales for research and marketing projects that maximize their profit potential. Read More
CropLife 100Learfield Sports, CHS Agree To Football-Centric, Colleg…
July 30, 2014
CHS Inc. will embark on a highly integrated collegiate sports sponsorship platform with 24 Division I universities in 19 states designed to reach the farmer-owned cooperative's rural owners and customers. Read More
LegislationUSDA Implements Key Farm Bill Crop Insurance Provision
July 30, 2014
The new Supplemental Coverage Option, available through the federal crop insurance program and set to begin with the 2015 crop year, is designed to help protect producers from yield and market volatility. Read More
CropLife 100Wilbur-Ellis Forms New Organizational Structure For Its…
July 30, 2014
The new structure will provide more responsive internal support and will allow regional vice presidents and area managers to spend more time with customers, on talent development and on operational excellence across branches. Read More
Palmer pigweed in cotton
HerbicidesNew Training Modules On Herbicide Resistance Now Availa…
July 30, 2014
The Weed Science Society of America has announced the availability of three new education modules on herbicide resistance in weeds. Read More
HerbicidesWillowood To Market Glufosinate
July 28, 2014
Willowood USA recently announced that Federal EPA has approved its technical registration for glufosinate. Read More
InsecticidesHow To Scout For Corn Earworms In Corn
July 28, 2014
In her weekly report, University of Missouri Agronomy Specialist Jill Scheidt discusses what to look for when scouting for corn earworm. Read More
Crop InputsDuPont Pioneer, Weyerhaeuser Enter Technology License A…
July 28, 2014
The agreement brings together agricultural and forestry know-how to sustainably improve crop productivity for corn growers around the world. Read More
EquipmentAGCO Launches Global iPad App
July 28, 2014
The free AGCO Global iPad App can be downloaded from the Apple iTunes Store and features the full family of RoGator self-propelled sprayers and TerraGator high-floatation spreaders. Read More
Eric SfiligojYuma Centennial Ag Supply Earns 2014 National Environme…
July 28, 2014
Colorado-based ag retailer receives top trophy in 24th annual DuPont Crop Protection/CropLife ceremony. Read More
CropLife 100Pinnacle Forms Alliance With Wildlife Managment, Seed O…
July 25, 2014
The strategic alliance will provide Tecomate with key wildlife products, processing facilities, distribution centers and sales through Pinnacle’s ever-growing retail network. Read More
ManagementFranken Presses White House On RFS Support
July 25, 2014
Al Franken and a group of Senate democrats recently met with senior White House official John Podesta to urge the administration to change its position on an EPA proposal. Read More
ManagementASA, FarmLink To Launch ‘Operation Benchmark̵…
July 25, 2014
The American Soybean Association (ASA) and FarmLink are teaming up to help farmers close the $11 billion gap between what they harvested in 2013 and what they could harvest annually. Read More
StewardshipNorthey: Farmers Commit $1.4 Million to Try New Water Q…
July 25, 2014
The practices that are eligible for funding include cover crops, no-till or strip till and using a nitrification inhibitor when applying fall fertilizer. Read More
Precision AgFarmers Learn How Changing World Will Impact Iowa
July 24, 2014
Technology and understanding global consumer demand for Iowa farm products brought hundreds of farmers and agribusiness leaders to Ames recently for the annual Iowa Farm Bureau Federation Economic Summit. Read More
HerbicidesPurdue: Late Season Weeds May Require Manual Removal
July 24, 2014
Hand-rouging and pulling late season weeds by hand may be the best way to remove them, more so than using a herbicide, a Purdue Extension weed scientist says. Read More
Soybean Field
InsecticidesTransform WG, Closer SC Insecticides Receive R&D 10…
July 23, 2014
Dow AgroSciences has received the award from R&D Magazine for Transform WG insecticide and Closer SC insecticide with Isoclast active. Read More