Fertilizer: Beyond The Demand Recovery

Outstanding demand prospects are the dominant feature of the crop nutrient outlook this year. The latest statistics from the International Fertilizer Industry Association (IFA) indicate that global nutrient use not only has recovered from the large decline two years ago but now is solidly on a new growth trajectory. For example, global nitrogen (N), phosphate (P2O5) and potash (K2O) use is projected to increase to a record 178.3 million tonnes in 2011, up 4% or 6.6 million tonnes from last year. Projected demand this year is 6% or 10.0 million tonnes greater than the peak in 2007 and it is up 14% or 22.3 million tonnes from the low level of 2008.

Global nitrogen use is forecast to increase to 107.2 million tonnes N in 2011, up 3% or 2.8 million tonnes from last year and up 6% or 6.5 million tonnes from 2007. The increase since 2007 is the equivalent of eight world scale nitrogen facilities. Global phosphate use is projected to increase to 41.7 million tonnes P2O5 this year, up 5% or 1.9 million tonnes from last year and up 8% or 3.2 million tonnes from the high level of 2007. Demand growth since 2007 is the equivalent of more than two Ma’aden plants (Ma’aden is a large project in Saudi Arabia that now is expected to come online during the last half of 2011 or in early 2012). World potash use is projected to climb to 29.4 million tonnes this year, up 1% or 400,000 tonnes K2O from the previous record set in 2007.

These demand forecasts are underpinned by high prices for a wide array of agricultural commodities and highly profitable farm economics worldwide. For example, prices for 2011 new crop corn, soybeans and hard red winter wheat were trading in the $5.85, $13.40 and $9.20 per bushel range in late January. We estimate that if a Midwest farmer sold his 2011 corn and soybean crops and bought crop nutrients and other inputs at current spot prices, returns over variable cost would total about $575 per acre for corn and about $500 per acre for soybeans. Those estimates are not too far behind the record levels of 2007.

This is not just a corn, wheat and soybean story, however. Prices for most other agricultural commodities also are trading at high levels. Fruit and vegetable price increases are fueling inflation in many countries including China and India. The price of sugar today is roughly three times the level three years ago and the price of cotton is about double its value three years ago and the highest since the Civil War. We expect stiff competition between commodities for acreage in the US this spring. For example, unlike three years ago, corn will have to pay up if it is to bid area away from cotton this spring.

In the US, we project that crop nutrient use will climb 10% in 2010/11 and rival the previous high marks set in 2003/04 and in 2006/07. Nitrogen use is forecast to increase 3% to about 13.0 million tons N or within spitting distance of the previous record of 13.2 million tons in 2006/07 when US farmers planted almost 94 million acres of corn. Phosphate use is projected to increase 11% to 4.6 million tons P2O5 also in line with the high level of 2006/07 and up 1.1 million tons P2O5 or the equivalent of almost 2.4 million tons of DAP from the sharp drop in 2008/09. Potash use is forecast to jump 32% to 5.1 million tons this year, also in line with the high level of 2006/07. These forecasts are based on the assumptions that US farmers will plant 92 to 93 million acres of corn, 78 to 79 acres of soybeans and 57 to 58 million acres of all wheat and that total area planted to the 21 principle crops will climb to about 325 million acres, up 10 million acres from last year but in line with the total in 2008. These forecasts also assume that application rates will exceed 10-year averages by modest amounts.

Factors Affecting Price

There are several factors that could move crop nutrient prices up or down from current levels. The most important is agricultural commodity prices. The robust nutrient demand outlook is underpinned by high crop prices today. High prices no doubt reflect increasingly tight fundamentals.

For example, according to the latest USDA estimates, US corn stocks at the end of the 2010/11 crop year are projected to drop to just 5.5% of use, the second lowest since 1970. US soybean stocks are forecast to drop to only 4.2% by the end of this crop year, the lowest percentage since 1970. As a result, grain and oilseed prices are expected to remain hyper-sensitive to weather developments or demand surprises and thus remain highly volatile.

Tight fundamentals and impressive price rallies have attracted speculative interest in soft commodities. In the case of corn, wheat and soybeans, the net long positions of index funds and large speculators today exceed the long positions held during the run-up in commodity prices three years ago. Fundamentals no doubt are constructive, but there remains a lingering concern about what could “spook the speculative herd” and cause a stampede toward the exits.

On the supply side, there is less cost push pressure in crop nutrient markets today than during the spike in crop nutrient prices three years ago. In the case of nitrogen, US natural gas prices are roughly one-half the levels three years ago thanks in large part to the growth of shale gas production as well as a tepid recovery in industrial gas demand. In the case of phosphate, sulphur and ammonia markets are tight and prices are at high levels today, but we do not expect that these costs will spike to the peaks of 2008 when spot sulphur delivered to key Asian destinations rocketed to $855 tonne and ammonia delivered to Tampa shot up to $931 per tonne.

Other uncertainties overhang crop nutrient markets – especially the phosphate market. How will the Indian subsidy issue play out in 2011/12? How much phosphate will China export in 2011? When will the large Ma’aden facility finally start up and how well will it operate? How will Mosaic’s South Fort Meade mine permit issue get resolved? Will current prices destroy crop nutrient demand?

Finally, sentiment today is cautious compared to euphoric during the last run-up in agricultural commodity prices three years ago — everyone has been to this rodeo once before. As a consequence, crop nutrient inventories today are relatively low in most countries at production points, throughout the distribution pipeline and in farm fields. That will make meeting projected record demand all the more challenging in the months ahead.

Leave a Reply

Fertilizer Stories

FertilizerFall Fertility 2014: Forecasting Fertilizer Use
September 7, 2014
Great crops this year have tapped the soil, and fall work is definitely called for, but how challenging will that get? Read More
Aerial view of the West Fertilizer explosion site
FertilizerFertilizer Companies Blame City For West, TX, Explosion
August 6, 2014
El Dorado Chemical Co. and CF Industries contend the city failed to properly train the first responders and had insufficient protocols in place to battle the April 17, 2013, blaze at West Fertilizer Co. that triggered the explosion. Read More
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

Trending Articles

Equipment2014 Product Of The Year Voting
September 19, 2014
Many new products were introduced to the ag retail marketplace this year. From this group, CropLife IRON and its consulting partners have selected five finalists for the Product of the Year award. Please cast your vote today to help us determine the winner. Read More
FertilizerFall Fertility 2014: Forecasting Fertilizer Use
September 7, 2014
Great crops this year have tapped the soil, and fall work is definitely called for, but how challenging will that get? Read More
CropLife 100CHS To Build $3 Billion Fertilizer Plant In North Dakota
September 5, 2014
The fertilizer plant in Spiritwood will be the single largest investment in CHS history, as well as the single largest private investment project ever undertaken in North Dakota. Read More
EquipmentNew Holland Acquires Miller-St. Nazianz
September 3, 2014
The assets of Miller acquired as part of the transaction will become part of New Holland Agriculture, a CNH Industrial brand, building on a successful four-year partnership between the two companies. Read More
CropLife 100Pinnacle Acquires East Kansas Chemical
September 2, 2014
Ranked 82nd on the CropLife 100, East Kansas Chemical will operate as part of Pinnacle's Performance Agriculture brand. Read More
MAGIE 2014 ShowStopper
EquipmentJohn Deere Again Wins MAGIE ShowStopper Award
August 25, 2014
For the second consecutive year, John Deere was honored at the Midwest AG Industries Exposition (MAGIE) for its new R4045 sprayer. Read More

Latest News

Syngenta
Crop InputsSyngenta Launches Plant Breeding Academy
October 1, 2014
Syngenta announces the release of its Breeding Academy, a global initiative designed to enable the continued development of scientists at Syngenta and beyond. Read More
FertilizerFertilizer Outlook And Technology Conference Set For No…
September 30, 2014
Conference participants can expect to gain perspective on the outlook for agriculture and major fertilizer materials and inputs from industry experts. Read More
MicronutrientsVerdesian Acquires Micronutrient Supplier
September 30, 2014
Verdesian Life Sciences has acquired QC Corp., a producer and supplier of granular and dry micronutrients and ferrous sulfate products. Read More
Eric SfiligojHearing From Young Ag Voices
September 30, 2014
Potential future leaders in ag retail had the chance to shine at the recent Mid America CropLife Association meeting. Read More
WebinarsUpcoming Webinars
September 30, 2014
Register for one of our upcoming Webinars or access our archive of past Webinars to view recordings of presentations that may be of interest to you. Read More
Crop InputsSyngenta Appoints New Chief Operating Officer
September 29, 2014
Jon Parr will succeed retiring COO John Atkin at the end of the year. Read More
CropLife 100South Dakota Wheat Growers To Add Grain-Agronomy Facili…
September 26, 2014
Planned to be constructed in Kennebec, the facility will be located along the soon-to-be rehabilitated line of heavy-rail service from Chamberlain to Presho. Read More
CropLife 100GROWMARK Announces Vice President Appointments
September 25, 2014
Two individuals have been appointed Vice President positions on the GROWMARK executive team. Read More
FertilizerFertilizer Industry Organizations Join Global Alliance …
September 25, 2014
The Fertilizer Institute, the International Plant Nutrition Institute and the International Fertilizer Industry Association are encouraging the industry to promote the proper use of fertilizer products to minimize their environmental impact. Read More
Precision AgARA Organized Precision Forum Hits Capitol Hill
September 24, 2014
The Coalition for the Advancement of Precision Agriculture (CAPA) hosted its inaugural Precision Ag Forum, Sept. 18, in Washington, D.C. Read More
FertilizerFactors To Consider When Placing Fertilizer With Seed
September 24, 2014
The type of crop, fertilizer source, row spacing and soil environment all affect how much fertilizer can be safely applied with seed. Read More
FertilizerSidedressing Manure Into Corn Has Promising Results
September 24, 2014
Applying manure to growing crops can boost yields, reduce nutrient losses and give livestock producers another window of time to apply manure to farm fields. Read More
FertilizerWhen To Sample Manure For Analysis
September 24, 2014
Because the goal is to collect a sample that represents the manure actually being applied, the best time to sample is during loading or field application. Here's why. Read More
Syngenta
Seed/BiotechSyngenta Faces Second Lawsuit Over Agrisure Viptera Cor…
September 23, 2014
A second company has sued Syngenta AG over sales of genetically modified corn seed not approved by China. Read More
StewardshipCover Crops Field Guide For Farmers Expanded
September 23, 2014
Farmers interested in planting cover crops to improve soil health now have an updated and expanded resource in the second edition of the Midwest Cover Crops Field Guide. Read More
HerbicidesArysta LifeScience Launches Contest For Wheat Growers
September 23, 2014
The Flush after Flush Photo Finish contest encourages farmers across the U.S. to participate through Instagram or Twitter using the hashtag #FlushAfterFlush. Read More
FertilizerCF Industries Confirms Merger Of Equals Discussions Wit…
September 23, 2014
CF Industries Holdings, Inc. has confirmed that it is in preliminary discussions with Yara International regarding a potential merger of equals transaction. Read More
StewardshipProgram To Examine Ag-Related Practices, Policies To Pr…
September 22, 2014
A panel discussion on October 14 will include a significant discussion on key issues and solutions related to all aspects of harmful algal blooms. Read More