Fertilizer: Poised To Grow

Fertilizer Pile

Based upon the available data, fertilizer will follow-up its strong performance in 2010 with an equally impressive one in 2011. Even using the most conservative crop nutrients projections as a base, U.S. fertilizer demand should reach 22.8 million metric tons in 2011, an increase of 22% compared with the 2010 total of 18.7 million metric tons. Coupled with the 18% growth rate experienced by the marketplace between 2009 and 2010, this would mark a new high-water mark for fertilizer consumption in America, topping the 22.5 million metric tons used by grower-customers during 2007.

“U.S. fertilizer use will be up in 2011,” said Tom Blue, president of Blue, Johnson & Associates, Inc., speaking at the annual The Fertilizer Institute‘s Fertilizer Outlook & Technology Conference in November. “All fertilizer prices are up, significantly correlated to crop prices.”

Even on the global stage, fertilizer futures look positive. According to its annual Fertilizer Outlook 2010-14 report, the International Fertilizer Industry Association is projecting a steady recovery from the worldwide economic downturn that plagued the marketplace during 2009. “With the progressive economic recovery and a return to more favorable and stable agricultural market conditions, world fertilizer demand in 2010-11 is forecast to increase by 4.8% to 170.4 million metric tons,” said the report. “The bulk of the increase in demand would come from Asia, and to a lesser extent, from the Americas.”

In the U.S., part of this growth is expected to come as a result of the crop mix. If early projections are correct, America’s growers will plant 88.2 million acres of corn in 2011 (up 3% from 2010), 77.7 million acres of soybean, 11 million acres of cotton and 53.6 million acres of wheat.

N-Chanted Numbers

With the expected rise in corn acreage as a boost, Blue is forecasting nitrogen (N) demand in 2011 will top 12.9 million metric tons, an increase of 9.3% from the 2010 total. This would also represent a new high in N demand for the marketplace, topping the 2007 total by 100,000 tons.

Making this projection seem even more solid is the current pricing in natural gas. According to Mercator Energy, natural gas prices are presently under $5 per British thermal unit, down more than $10 in the past five years. This is due to the abundance of shale-recovered natural gas now being supplied to the market, which is expected to keep prices stable for the foreseeable future.

“Most experts project flat gas prices for the next five years,” said Mercator Energy President John Harpole. “In 20 years, we have never seen flat gas prices.”

Phosphate (P) is also expected to benefit from the increase in corn acreage, since 49% of all P used for crop growth in the U.S. goes to corn (see graph). In 2011, P demand is projected to climb 53% to 4.6 million metric tons, tying the demand highs achieved by P in 2005 and 2007. “There is currently strong phosphate demand in all major markets,” concluded Kelly Davey, manager, market research for Potash Corp. of Saskatchewan.

This is a pleasant surprise considering much of the talk during late 2010 focused on potential shortages of P materials going into 2011. However, according to a new report entitled World Phosphate Rock and Resources from the International Center for Soil Fertility and Agricultural Development, there are sufficient global phosphate rock resources to produce phosphate rock concentrate, phosphoric acid, phosphate fertilizers and other phosphate-based products for several hundred years. “Reserves and resources of key rock-phosphate producing countries were assessed using a variety of available information sources,” said Dr. Terry Roberts, president of the International Plant Nutrition Institute, explaining the report’s contents. “The new study estimates global reserves at about 60 billion metric tons, which is about four times higher than current, but outdated, estimates of the U.S. Geological Survey.” Furthermore, the report speculates that peak phosphate rock production won’t be reached until 2033 or 2034.

Meanwhile, potash (K) demand should also hit new highs in 2011. According to projections, K volume should hit 5.3 million metric tons in 2011, up 36% from 2010. This would beat the previous high water mark for K demand of 5.2 million metric tons, set in 2005.

“Potash demand drivers are strong,” said Dr. Michael Rahm, vice president, market and strategic analysis for The Mosaic Co. “There are high agricultural commodity prices, solid underlying agricultural fundamentals and positive farm economics/income worldwide.”

Still, there are a few concerns for K going forward. “If there is a concern, it was the fact that producers struggled to keep up with peak shipments this fall and the market is expected to remain tight until new capacity comes online later this decade,” added Rahm.

Blue concurred, adding N and P supply/demand into the equation as well. “With corn harvest occurring relatively early in 2010, demand for P, K and ammonia for fall application had been pretty strong,” he said. “Regarding P and K, though, the uncertainty becomes this: If a lot went down in the fall, what degree will that impinge on spring demand?”

New Order Taking

However, even with this bit of uncertainty, Blue said that the fertilizer industry is better positioned to weather an unexpected market downturn compared with prior years. “Lessons were actually learned in 2007-08-09,” he said. “Major suppliers appear to be sticking with a strategy of supplying/taking orders for one or two months only at a given price. So, in a scenario where crop prices, especially corn, keep ramping up, suppliers will have not ‘oversold’ at current prices. Or, if crop prices seriously retreat for some reason, suppliers have the option to drop prices so as to continue to move product.”

Given these factors, Blue is optimistic that fertilizer demand will enjoy a fruitful 2011. “In absolute terms, we see no basic, inherent shortage of N, P and K supply capacity for both the domestic and international market,” he said. “The principle issues are, as always, supply at what price and is it/will it be in the right place at the right time?”

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