When it comes to crop inputs, there’s little denying that the whole of the 21st century has largely belonged to the fertilizer segment. With the exception of a brief pause during mid-2008, overall fertilizer sales for ag retailers have been at near-record highs year after year. In 2012, for example, ag retailers that comprised the CropLife 100 had $15.2 billion in fertilizer revenues, with the segment holding a solid 55% market share of all crop input sales.
Even more telling, these numbers could have been stronger if 2012 had cooperated, weather-wise. During the early part of the year, weather conditions seemed perfect for planting and spring fertility application work. Unfortunately, an extremely dry late spring turned into a bone-dry summer for much of the country. According to most ag retailers, this severely curtailed fertilizer applications.
“The full impact [of the drought] is very difficult to predict as some parts of our trade area have experienced severe crop loss while others have had much less,” said Doug Busdeker, senior manager, Northern farm centers for The Andersons, Inc., Maumee, OH, during a fall 2012 interview.
At the end of the year, U.S. corn production was off 13% to 272.4 million metric tons according to USDA — its lowest level since 2006-07.
Corn Is The Key
So with 2012 behind the industry, what is the early read on 2013? According to most market watchers, the answer is extremely positive. “Agricultural fundamentals have never been stronger,” said Jason Newton, head of market research for Agrium, speaking at The Fertilizer Institute’s Outlook & Technology Conference this past November. “Grower cash margins and income levels are at record highs.”
Of course, on the most basic level, corn is the key for fertilizer usage in the U.S. As commodity prices for this important cash crop have remained high during the past couple of years, the nation’s growers have steadily increased their planted acres accordingly. In 2012, 96.9 million acres were planted (although approximately 10 million of this total was lost during the drought).
In 2013, market watchers again expect a strong year for corn acreage. According to most models, corn acreage should again top 96 million acres, with soybeans and wheat also up. Only cotton is projected to see an acreage decline.
“Crop prices are good and 2013 acreage will be high,” said Rich Pottorff, chief economist for Doane Advisory Services at the TFI Outlook Conference. “Fertilizer demand should also be good.”
Among the three major fertilizer sectors, this projection means the most for nitrogen-based crop nutrients (N) such as anhydrous ammonia (NH3) and urea. In any given year, approximately half of the N used in the U.S. is applied to fields growing corn. Wheat comes in a distant second at 13% (although acreage projections also show wheat acres being up for 2013).
So in terms of N fertilizer usage in 2013, most analysts are projecting a modest increase across all segments. According to Arvin Pirness, manager, market research for PotashCorp, NH3 demand should show a slight increase from 17.2 million tons in 2012 to 17.3 million tons this year. Meanwhile, urea demand is expected to increase from 7.5 million tons in 2012 to 7.6 million tons in 2013. As for N solutions, these should grow from 13 million tons in 2012 to 13.1 million tons in 2013.
“Agriculture fundamentals are providing an optimistic backdrop for the upcoming fertilizer season,” says Pirness. “This is especially true when it comes to North American N demand.”
More P Mining
If there was one segment among the major fertilizer types that had the roughest time in 2012, it was phosphate (P). As Juan Von Gernet, senior consultant, phosphates for CRU Group, puts it: “The USA is a mature market with falling P demand.” Of course, this situation wasn’t helped much by the lingering nationwide drought across much of the country, which kept growers from applying new P to their fields instead of mining what might have already been there. With these factors working against it, the P segment saw its usage rates plunge from 5.6 million tons in 2011 to 5.2 million tons in 2012.
Despite this fact, Von Gernet is confident that P demand will begin a modest rebound during 2013. “The downward trend is likely to flatten in 2013 before recovering a year later,” he predicts. With this in mind, he projects that P demand in 2013 will increase 6% to 5.5 million tons by the end of the year.
A Long Way Back For K
For the final fertilizer macro-segment, potash (K), the past few years have been ones of recovery. In 2008, K consumption in the U.S. was at 4.2 million tons. However, critically high prices put an end to much of this demand and by the following year, with usage dropping 33% to 2.8 million tons.
Since this low point, K fortunes have steadily improved. By the end of 2010, the segment had recovered almost all of its lost demand, topping 4.1 million tons for the year. In 2011, K consumption topped 4.4 million tons — and it managed to increase another 0.1 tons in 2012 to 4.5 million tons.
But, according to Agrium’s Newton, 2013 will mark an end to this modest winning streak. “In 2013, I expect overall K consumption to be flat, driven by crop area and application rates,” he says.
As for why he expects this to be the case, Newton points to the after effects of the drought to continue to negatively impact K demand this year. “The most severely affected regions will likely reduce their application rates,” he says. “Furthermore, areas west of Central Illinois still require moisture.”
In addition, he adds, soil test results for K from 2012 in many areas of the country were not “significantly different than previous years.”
Yet, there are a few factors that might work into higher K demand from grower-customers during 2013. For one thing, there is an overall long-term trend of declining K levels in U.S. soils, magnified by increased silage (which equates to increased K uptake, according to Newton).
More encouragingly, Newton believes at least part of the U.S. will finally shake off the effects of the drought of 2012 as this past winter’s moisture figures are beginning to show. “There are signs of improved moisture in the Eastern Corn Belt,” he says.