Until recent years, fertilizer prices had held relatively steady for U.S. farmers. Then, in 2008, fertilizer prices made a rapid, alarming ascent before hitting record levels in the fall.

Several years later, still-skittish farmers haven’t forgotten that 2008 price run-up and many wonder what 2011 might bring. The National Corn Growers Association tried to provide growers some answers during a Dec. 16 Webinar.  

“We have nearly 80 million new mouths to feed annually,” said Harry Vroomen, vice president of economic services at The Fertilizer Institute (TFI). Heading into 2011, “world grain stocks are relatively low and U.S. farm income is strong. The world and United States will be growing out of recession.”

It should be noted that because TFI represents the fertilizer industry, the U.S. Department of Justice “prohibits us from making explicit fertilizer price forecasts. … But I will discuss the supply/demand factors driving the market.”

Setting the stage

Fertilizing materials “are commodities like corn, soybeans and wheat,” Vroomen reminded his audience. “They’re priced in U.S. dollars around the world and traded widely.

“Many of the same fundamentals that caused record grain prices in 2008 led to the record fertilizer prices in a combination of demand-pull and cost-push factors. Significantly higher transportation costs, the falling value of the U.S. dollar and other factors also played a role.”

During the 1960s, 1970s and 1980s, “world nutrient demand rose in a fairly predictable fashion. That made it relatively easy to plan new nitrogen plants, new mines and things like that.”

Such ease of planning was wiped away in 1989 with the collapse of the Soviet Union. The collapse of communism meant nutrient demands in the region declined by 70 to 90 percent. European policies “also resulted in a continuous decline in demand in that region. Overall, nutrient demand fell by 17 percent over a five-year period (of 1990 through 1995).

“Imagine if world corn demand fell by 17 percent and the impact that would have on the corn market.”

Fertilizer use during the period fell by 9 percent for nitrogen, 23 percent for phosphates and 30 percent for potash. This led to “overcapacity in the industry and a very poor investment environment with respect to planning a new plant or mine.”

For the next five years, 1995/1996 through 2000/2001, “world nutrient demand rose by only 7.9 million nutrient tons. We were still 5 percent below the peak of 1988/1989. Nutrient use actually fell in the United States in this period but the drop was more than offset by an increase in the rest of the world. Overall, world demand rose by only 1 percent a year during this period.”

While showing a chart illustrating the number of acres of world grains harvested and total world grain production, Vroomen said ultimately it is “agriculture that demands fertilizer demand and it was that demand which turned things around.”  The chart shows “the number of acres harvested peaked in 1981 and is still down 5 percent from its peak. Yet, world grain production is up more than 50 percent since 1981.”

At the time, 2004 to 2008 experienced “the largest levels of world grain production on record. All exceeded 2 billion metric tons. These record crops required significant nutrients and are the driving force behind the recent increase in world fertilizer demand.”