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

Iowa waterways
FertilizerDow AgroSciences Recognizes Ag Retailers’ Role in Protecting Iowa Water Quality
April 6, 2017
The state of Iowa and its agriculture community have worked for decades to preserve soil health, protect water quality and Read More
Yara West Sacramento Ribbon Cutting
Crop InputsYara West Sacramento Is Newest Addition
March 27, 2017
Yara’s West Sacramento Terminal was officially welcomed March 21 as the newest Yara North America facility in the U.S. While continually Read More
Nutrients for Life Foundation Teacher
FertilizerNutrients For Life Foundation Celebrates 10 Years Teaching Fertilizer Education
March 23, 2017
Those in agriculture know fertilizer is a vital ingredient to grow strong, productive crops. In fact, fertilizer is responsible for Read More
Growing corn
Crop InputsLock Down Nitrogen For 2017 Profits
March 5, 2017
Managing nutrient programs to snuff out the three types of nitrogen loss — leaching, volatilization, and denitrification — is crucial Read More
Trending Articles
Young Corn Plants
Crop NutritionStill Hunting Yields
April 1, 2017
There’s no denying it — the agricultural marketplace today is undergoing a fundamental shift in fortunes. Not too many years Read More
Nutrients for Life Foundation Teacher
FertilizerNutrients For Life Foundation Celebrates 10 Years Teaching Fertilizer Education
March 23, 2017
Those in agriculture know fertilizer is a vital ingredient to grow strong, productive crops. In fact, fertilizer is responsible for Read More
AdjuvantsA New Weed-Control Era Begins: But First, One Last Obstacle
March 4, 2017
There is trepidation, there is reluctance, and there is excitement. Ag retailers feel it all about the new dicamba and Read More
LIFT Academy video screenshot
Crop InputsLIFT Agriculture Academy: A Q&A With West Central Distribution’s Dean Hendrickson
March 1, 2017
West Central Distribution recently launched its LIFT Agriculture Academy, a new, premiere training and professional development resource for West Central’s ag Read More
Farmer and aptop
Matt Hopkins10 Warning Signs Your Website Is Grossly Outdated
February 8, 2017
Your Website is often a visitor’s first impression of your ag retail business. A positive first impression can set the Read More
AgriSync
Matt Hopkins17 Agriculture Apps That Will Help You Farm Smarter In 2017
December 9, 2016
Ag professionals are working smarter, not harder, than ever before. Smart farming technologies have enabled them to reduce costs, maximize Read More
Latest News
ManagementAn Inside Look at Award Winning Ag Retailer Gar Tooteli…
April 20, 2017
CropLife Editor Eric Sfiligoj discusses An Inside Look at Award Winning Ag Retailer Gar Tootelian Read More
Students Soybean Field
Industry NewsMACA Announces 2017 Young Leader Scholarship Recipients
April 19, 2017
The Mid America CropLife Association (MACA) Board of Directors selected 11 college students to receive the MACA Young Leader Scholarship Read More
Growmark FS Outlet
SoftwareKnoa Software Solution Helps GROWMARK Boost System Perf…
April 19, 2017
Knoa Software, a leading provider of user experience management (UEM) software, has announced that GROWMARK, Inc., a regional agricultural cooperative Read More
Crop InputsFBN Publishes ‘Voice of the Farmer’ Agricul…
April 17, 2017
Farmer’s Business Network (FBN) released today its “The Voice of the Farmer”, which the company is describing as “a special Read More
ManagementTalking Responsible Ag
April 13, 2017
CropLife Editor Eric Sfiligoj discusses the Responsible Ag program with director Bill Qualls. Read More
Crop InputsFlying Under the Radar No More, FMC Goes Big
April 13, 2017
Describing FMC as “under the radar,” admittedly, is probably a stretch. But in a snap of the fingers, FMC upped Read More
Crop InputsWhat do Roundup and Mickey Mouse Have in Common? Califo…
April 13, 2017
(SOURCE: East Valley Times) Glyphosate, the active ingredient in Monsanto Co.’s Roundup and many other weed killers, is being added Read More
Syngenta headquarters in Basel, Switzerland
Crop InputsSource: ChemChina to Divest Assets to Adama Following S…
April 11, 2017
China National Chemical Corp. plans to redistribute agrochemical assets to its Adama unit after the $43 billion takeover of Syngenta Read More
Farming drone air
Eric SfiligojThe Interest in UAVs for Agriculture Grows
April 10, 2017
At times, it seems as if experts have been predicting “big things” for unmanned aerial vehicles (UAVs) for several years Read More
OpinionOpinion: Taking On The Farmers Business Network
April 8, 2017
Well, another round of venture capital funding has come to Farmers Business Network (FBN), followed up with the obligatory feature Read More
Drone
EquipmentFarming Drones: The Future Of Agriculture?
April 7, 2017
Chances are, you already know drones are amazing. After all, this is something DroneLife readers just understand. But if you’re Read More
ManagementFMC-DuPont, Crop Plantings, and UAV Updates
April 6, 2017
Editors Eric Sfiligoj and Jackie Pucci discuss the purchase agreement between DuPont and FMC, the 2017 crop acreage mix and Read More
Falcon soil sampler
EquipmentSerious Soil Sampling Rigs
April 6, 2017
The industry has seen an increase in automation in sampling equipment, and consultants now often pull cores with an automated Read More
Iowa waterways
FertilizerDow AgroSciences Recognizes Ag Retailers’ Role in Prote…
April 6, 2017
The state of Iowa and its agriculture community have worked for decades to preserve soil health, protect water quality and Read More
Farmer Scouting Weeds in Soybean Field
EquipmentSoil, Scouting Programs Continue To Gain Value
April 5, 2017
How much growers and their retailers utilize soil testing and scouting varies greatly. But they should step up their game Read More
Forbes Mixing Bowl NYC
Precision Ag6 Key Takeaways from Forbes Mixing Bowl NYC
April 5, 2017
Advisory investment group The Mixing Bowl teamed up with Forbes for its New York-based event this year to discuss technology’s Read More
Pam Marrone
Crop InputsQ&A With Pam Marrone On The World’s First All-Biolo…
April 4, 2017
Marrone Bio Innovations Inc. and Israel-based Ground­work BioAg in February announced successful field trials of the world’s first all-biological comprehensive Read More
Corn soil
Crop NutritionBiostimulants Clamor For A Piece Of The Row Crop Market
April 3, 2017
The question these days isn’t who is venturing into biostimulants — it’s who isn’t. Or more to the point: The Read More