What did the record 2008 fertilizer prices do to fertilizer demand?

Vroomen first touched on the U.S. market.

“The U.S. economy was in pretty rough shape. This impacts growers’ psychology, which impacts planting and input decisions...

“Corn prices received by farmers peaked in June 2008 and have dropped since. Fertilizer prices continued to rise and were slower to come down. … (The two) don’t move together one-for-one but generally move together. … In 2008/2009, there was a big divergence – we’d never seen a divergence like that in corn and fertilizer prices.”

While all the data isn’t in, forecasts show “a 16 to 17 percent drop in U.S. nutrient use in 2009. That’s with almost no change in acres of the major crops. The entire drop in demand was price induced. In other words, application rates fell dramatically.”

Overall, nitrogen saw a 6 to 8 percent drop in 2008/2009, phosphate a 25 to 29 percent drop and potash a 32 to 36 percent drop. “Total use of N, P, and K – about 18 million tons of nutrients in 2009 – will be the lowest level in the United States since 1975.”

The impact of higher prices led to the highest usage drops in South America. “We saw large drops in Argentina and Brazil. China was down for the first time in many years.”

Bucking the trend, India’s fertilizer use was still up. That’s largely because India has a subsidy program where the price of fertilizer is fixed.

“Overall, the world saw a 2 percent drop in nitrogen … a 12 percent drop in phosphate … and a 19 percent drop in potash.”

This drove down prices from their historic highs.

In the United States, in response to the drop in demand and lower prices, “nitrogen production fell by 8 percent and phosphate production fell by 24 percent. North American potash production fell by 36 percent (there are now only two U.S. domestic producers of potash, so the data is combined with Canadian figures).”

The impact of the drop in demand is also clear with import numbers where nitrogen imports fell by 24 percent and potash fell by 43 percent.

2010 recap

2010 was hardly a smooth ride.

“Russian drought and wildfires caused a third drop in their (wheat) crop, with worldwide implications. On the soybean side, we have very strong exports mostly driven by the Chinese. The cotton market has turned around with world use exceeding production for the fifth straight year. With corn, the biggest surprise was USDA reducing yield estimates.”

In May 2010, the USDA came out with its first estimate of the new crop season. This was “before everyone had even finished planting corn. … We heard reports as the year went on, that the corn crop didn’t look as good as the USDA was projecting. Surprisingly, in August, they actually raised their yield estimate. Then, they seem to have caught up with what everyone else was observing – corn yields weren’t as good.

“If you look at what changed between May 2010 and the USDA’s latest report on Dec. 10, they started out with a yield of 163.5 bushels (per acre). They dropped that by nearly 10 bushels by December. … As a result, production estimates dropped by 6.2 percent, or over 830 million bushels.”

USDA increased the total use estimate from May by 1 percent. As a result, “there was a big drop in supply … and ending stocks are 54 percent lower than originally projected. The stocks-to-use ratio of 6.2 percent is very, very tight. … There’s been nearly a 50 percent increase in the corn price since May.”

Also, ammonium phosphate inventories reached record lows at the end of November. Potash inventories are tightening, as well, driving up prices.

“Fertilizer prices are rising, as you’d expect with rising demand. But crop prices are strong. So, we expect solid fertilizer application rates” to be used in 2011.

Looking at the U.S. crop acreage projections for 2011, USDA analysts “show strong acreage for corn and soybeans and a bit of recovery in wheat.

“As for nutrient demand levels for the U.S., after the big drop in 2008/2009, the 2009/2010 fertilizer demand was up 6 to 8 percent. We expect another 4 to 6 percent increase in nitrogen demand in 2010/2011.”

For phosphates, there was a 25 to 29 percent drop in use for 2008/2009. Vroomen and colleagues expect robust recovery in 2009/2010 and an additional 8 to 10 percent increase in U.S. demand in 2010/2011.

There was a big drop in potash use in 2008/2009 and significant recovery in 2009/2010. “We expect a 10 to 12 percent increase in 2010/2011.”

World projections released in early December show that on the nitrogen side, “we’re looking at about a 6 percent increase. With phosphate, we saw a big drop in demand but expect an 18 percent recovery worldwide. The big drop in potash demand carried over into 2009/2010 in South America – but we expect a jump of 17 percent in 2010/2011 in world potash demand.”

2011 bullet points

Entering 2011, Vroomen said growers should keep these facts in mind:

  • On the potash side, specifically, (data suggests) India and China’s use will continue to grow even quicker than N and phosphate.
  • On the negative side, ammonia rail rates will continue to rise.
  • EPA has allowed higher amounts of ethanol in fuel.
  • All these things should lead to increases in long-term fertilizer demand.
  • In 2010/2011, “we have strong demand for nitrogen and, again, recovery in P and “K.
  • Raw material prices, natural gas, “went very high in 2007/2008 and dropped dramatically with the development of shale gas production in the United States. Recently, those prices have risen rapidly.”
  • Phosphate prices – historically, around $25 before hitting record highs in 2007/2008 – are lower but still well above historical levels.
  • The value of the U.S. dollar is also negative. “It was very low in 2007/2008 and is again.”
  • dbennett@farmpress.com