A Perilous Descent

In CropLife magazine’s January 2008 outlook issue, we compared the fertilizer marketplace to a mountain, pointing out that the industry was poised for a gradual descent after reaching the summit fueled by increased corn plantings during 2007. By coincidence, a speaker at one of the fall trade shows made a similar comparison regarding fertilizer’s fortunes moving forward.

“As you may know, many people climb Mount Everest each year,” said Joe Prokopanko, president and CEO for The Mosaic Co., speaking at the 2008 Agricultural Retailers Association meeting. “While some are hurt on the way up the mountain, many more are injured while coming back down.”

Today, ag retailers can largely appreciate this imagery. Following a spectacular sales performance in 2007 and an equally impressive one through the first nine months of 2008, fertilizer demand and prices have come tumbling down the mountain. This has retailers — many of whom stocked up fertilizer early on to make certain to meet expected demand — reaching for stomach medicine while hoping for some kind of recovery before the spring fertility season rolls around.

“What keeps me up at night these days?” asked Hov Tinsman III, president at Twin State Inc., Davenport, IA, in an e-mail to CropLife. “How and when my current fertilizer inventory is going to fall in value. Hopefully, not until after I apply it.”

Wendell Stratton, owner for Stratton Seed Co., Stuttgart, AR, agreed. “This is an easy one,” said Stratton. “Not losing money on the high-priced fertilizer inventory we have in-house.”

To appreciate just how quickly some fertilizer prices have dropped, consider sulfur. According to Prokopanko, sulfur was selling for $800 per ton during the summer months of 2008. By early December, it had plummeted to $65 per ton, a whopping 92% drop. Even worse, he added, several market observers were expecting the price would be as low as $50 per ton by end of 2008.

“The net result of all this market instability is that no one is buying and distributors are holding all of their inventories,” said Prokopanko.

Reviewing The Macronutrients

Nitrogen-based fertilizers have gone through similar price declines. For instance, urea was selling for $760 per ton in August 2008; today it can be had for approximately $250 per ton. Likewise, anhydrous ammonia dropped from a high of more than $1,000 per ton during the summer to $530 per ton by the end of the year. As a consequence of these price declines, Doug Stone, senior vice president of sales and marketing for Terra Industries, Inc., was predicting that nitrogen-based fertilizer consumption would drop in 2009, from 21.7 million tons in 2007/08 to 20.8 million tons. For the record, he added that agriculture tends to consume an average of 12.1 million tons of this total. Furthermore, global nitrogen-based fertilizer producers are cutting back on production, temporarily closing plants or running a reduced number of production lines as a result.

“This will likely mean projected tight demand/supply balances for spring 2009, which could cause prices to rebound some,” said Stone, speaking at the Fertilizer Outlook and Technology Conference in early November. “However, the price ride is still ongoing with more loop-de-loops ahead.”

For phosphate, the path down the mountain has been treacherous as well. According to industry insiders, di-ammonium phosphate (DAP) prices were at $1,200 per ton during the summer months. Today, they are down more than 50% to $550 per ton. This has effectively caused phosphate production to grind to a halt. For example, in November, PotashCorp announced production cuts at its White Springs, FL, site. Likewise, Mosaic reported that its phosphate sales volume for its fiscal second quarter was down 38% from first quarter levels, to 1.3 million metric tons.

The potash situation is the same. According to Jeff Holzman, manager of market research for PotashCorp, producers are cutting back on their output levels in an attempt to draw down supplies and stabilize prices. “There are source deferrals of packages in the fourth quarter of 2008 and into the first quarter of 2009,” said Holzman. “Shipments will be down around 3% for the year. Also, in 2009, we can expect no growth or some modest growth to occur in the market.”

The Chicken Little Syndrome

Given all these facts, Mosaic’s Prokopanko asked if 2009 would be the year that the fertilizer industry finally suffers from the long predicted “Chicken Little” effect, with suppliers unable (or unwilling) to meet grower-customer crop nutrient demands, which will reduce crop yields significantly. “Will this be the year when the sky really falls?” he asked.

Ultimately, however, he doesn’t think things will get this bad. Based upon global population projections and the crops needed to feed this growing populace, Prokopanko expects crop nutrient demand to grow from 170 million tons today to 230 million tons by 2020. “The long-term outlook for global agriculture looks rock solid to us,” he concluded. “Although the current market volatility provides serious questions in the near term, we still have as many blessings in this industry as we have challenges.”

Other fertilizer industry watchers agree with this assessment. According to Andy Jung, research manager, phosphate for CRU International, world grain stocks are at historic lows. “Right now, the global grain carryover is 11 weeks,” said Jung. “In 2002, this total stood at 13 weeks. That means we are only one big disaster away from wiping out this amount completely.”

In light of this, Rich Pottorff, chief economist at Doane Advisory Services, said the world will need more corn acreage in 2009 to keep pace with global demand, particularly from U.S. growers. For this reason, he is projecting that growers will plant 89 million acres of corn in 2009, up slightly from 86 million acres in 2008. “We really need more corn acres than this, but the economics have to be there for that to happen, which they are not right now,” said Pottorff. “We have to add 26 million metric tons of food annually to feed the 80 million more people being born each year.”

Consequently, this increased corn acreage should help boost fertilizer demand during 2009. Demand for ethanol should help. Ethanol production in 2009 could require up to 4.8 million bushels of corn, despite waning support. “Even if biofuels support collapsed completely, nitrogen-based fertilizer demand would only decrease by 2%,” said Terra’s Stone.

Leave a Reply

Fertilizer Stories

Young Corn Field
Crop NutritionNext Generation Of Nitrogen Efficiency Technology Converts Nitrogen To Bushels
June 13, 2016
Commodity price projections indicate farmers will continue to face tight margins again this year. Delivering higher yields and more bushels Read More
FertilizerMSU: Early Lake Erie Algal Bloom Projections Positive
June 1, 2016
Over the past decade, Lake Erie has seen an increase of harmful algal blooms (HABs). These algal blooms are made Read More
FertilizerSimplot Introduces Fused-Safe Ammonium Sulfate Nitrate Fertilizer
May 31, 2016
The J. R. Simplot Co.’s new FŪSN fertilizer is now commercially available to growers. Simplot uses advanced technology to fuse Read More
Crop InputsLand O’Lakes Announces Minnesota Water Quality Partnership
May 25, 2016
Governor Mark Dayton and Land O’Lakes, Inc. President and CEO Chris Policinski today announced a new public-private partnership to protect Read More
Trending Articles
Food IT
Industry NewsCalifornia Event Will Mix Ag And Tech Professionals To Explore IT Solutions
June 20, 2016
Silicon Valley is hot on agriculture, and an upcoming event in California will bring together the food and tech industries Read More
Monsanto Luling Plant
Eric SfiligojWhat’s Next For Monsanto?
May 31, 2016
For the folks at Monsanto’s headquarters in St. Louis, MO, it has been an eventful few weeks. Back on May Read More
Soybean Plant closeup
Industry NewsMonsanto Rejects Bayer Bid; Open To More Talks
May 25, 2016
Monsanto Co, the world’s largest seed company, turned down Bayer AG’s $62 billion acquisition bid as “incomplete and financially inadequate” Read More
Eric SfiligojPity The Monsanto Haters
May 23, 2016
An old saying goes thus: “Be careful what you wish for. You just might get it.” Given current events, there Read More
Monsanto Luling Plant
Crop InputsReport: Bayer Eyeing Monsanto For Possible Mega-Merger
May 16, 2016
Bayer AG is exploring a potential bid for U.S. competitor Monsanto Co. in a deal that would create the world’s Read More
Aerial Drone
Precision AgA Deeper Dive Into The Future Of Precision Ag
May 9, 2016
For about two decades now, through the good and the bad times, the ups and the downs inherent in agriculture, Read More
Latest News
Eric SfiligojThe British Leave Vote Impact On EU Agriculture
June 27, 2016
Like virtually everyone else in the world this past week, I’ve watched the global reaction to Britain’s vote to exit Read More
Valent David Nothmann
Crop InputsValent Names David Nothmann Vice President Of Marketing
June 27, 2016
Valent U.S.A. Corp. has announced the appointment of David Nothmann as vice president of marketing. Nothmann will be responsible for Read More
The Andersons Waterloo
ManagementFirst Indiana Facility Certified Under 4R Nutrient Stew…
June 27, 2016
The 4R Nutrient Stewardship Certification Program has announced that The Andersons, Inc.’s Waterloo, IN, facility has been added to its Read More
CropLife 100BRANDT Contributes To Mayo Clinic
June 27, 2016
BRANDT, a leading agriculture retailer and manufacturer of specialty agriculture products, has pledged a sizable donation to the Mayo Clinic Read More
ManagementReport: U.S. Farmland Values On Average Continue Gradua…
June 27, 2016
Land price movement has been in the forefront for farmers, landowners, lenders and land brokers for a decade now during Read More
AdjuvantsPrecision Laboratories Introduces Intact Xtra For Use W…
June 27, 2016
Precision Laboratories announces the launch of Intact Xtra, an adjuvant designed for applicators who want to maximize spray applications and Read More
Key Cooperative’s new liquid fertilizer, crop chemical, and seed facility in Grinnell, IA stores 1.5 million gallons of liquid fertilizer and 120,000 gallons of crop chemicals.
Retail FacilitiesKey Cooperative Facility Features The Latest In Murray …
June 27, 2016
When Key Cooperative wanted to improve the overall efficiency at its new state-of-the-art facility in Grinnell, IA, it turned to Read More
Allen Summers Asmark Institute PSM Training
EmployeesAsmark Institute Sponsors 25 ResponsibleAg Auditor Trai…
June 21, 2016
The Asmark Institute has announced plans to provide 25 scholarships through their affiliated State fertilizer and agrichemical associations to help encourage Read More
Kennebec Elevator
CropLife 100Wheat Growers Celebrates Kennebec Elevator Grand Openin…
June 21, 2016
Over 250 patrons and guests were on hand to celebrate Wheat Growers’ Kennebec Elevator grand opening. South Dakota Secretary of Read More
Land O Lakes
Industry NewsLand O’Lakes To Acquire Ceres
June 20, 2016
Land O’ Lakes, Inc. and Ceres, Inc. have announced that they have signed a definitive merger agreement under which Land O’Lakes Read More
Food IT
Industry NewsCalifornia Event Will Mix Ag And Tech Professionals To …
June 20, 2016
Silicon Valley is hot on agriculture, and an upcoming event in California will bring together the food and tech industries Read More
LegislationVilsack Christens WinField Crop Adventure, Talks Monsan…
June 17, 2016
The WinField Crop Adventure grand opening ceremonies at Fair Oaks Farms (near Winemac, IN) welcomed USDA Secretary of Agriculture Tom Read More
Crop InputsFields of the Future: WinField Doubles Down with Agri-E…
June 16, 2016
Land O’Lakes, Inc., joined by Agriculture Secretary Tom Vilsack, today will host Fields of the Future, a live broadcast about Read More
Bayer sign
Crop InputsMonsanto Turns Back Bayer Again
June 14, 2016
Bayer AG’s bid to buy Monsanto Co. for more than $60 billion has hit an impasse that could pose a Read More
Young Corn Field
Crop NutritionNext Generation Of Nitrogen Efficiency Technology Conve…
June 13, 2016
Commodity price projections indicate farmers will continue to face tight margins again this year. Delivering higher yields and more bushels Read More
Industry NewsLa Crosse Seed Acquires Cover Crop Solutions Brand
June 10, 2016
La Crosse Seed announces that it is the new and exclusive owner of the entire family of brands of Cover Read More
ManagementTravel Plans and EU Rejection of Glyphosate, Biotech Cr…
June 9, 2016
Editors Paul Schrimpf and Eric Sfiligoj talk about upcoming trips and the latest in the European Union’s moves against glyphosate Read More