If you peruse websites of fertilizer companies such as Agrium and PotashCorp for the presentations they make to investor conferences, it is clear they think demand will rebound this year.
And with returning demand, they forecast higher prices for their crop nutrients.
Farmers are leery about advice to buy now to avoid future price increases, but it is hard to see a situation where fertilizer prices would drop again. The only one I can think of is if those who believe we are in for a double dip recession are correct and we are about to hit the second leg down.
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But if the recovery holds, then we probably saw the bottom of the nitrogen and phosphate price decline last autumn. Potash continued to fall but there are signs it might be hitting a bottom now.
The U.S. Department of Agriculture surveys fertilizer prices in Illinois every two weeks. The price is listed in U.S. dollars per short ton.
It shows that average urea 46-0-0 prices bottomed at slightly less than $375 in late September and were steady until December when they began to rise. In the second half of January, the price had risen to average about $418.
Diammonium phosphate 18-46-0, which bottomed at about $380 last fall, climbed to about $470 in the latest report.
Potash declined slowly last fall, but price drops have been larger since the start of the year. The latest average price was $472.
Fertilizer companies are optimistic that demand will return this year and climb in coming years as the world’s farmers increase production to serve the globe’s growing population as well as an increasing demand for meat from grain-fed livestock.
The companies think 2009, when fertilizer use fell, was an aberration.
Agrium has a particularly interesting graphic on U.S. nutrient demand going back to 1989-90. It shows that demand for nutrients usually varied by less than 10 percent until the price spike of 2008-09, when nitrogen demand fell by 10 percent, phosphate by about 30 percent and potash by more than 40 percent.
Farmers all over the world cut fertilizer use and prices fell sharply.
However, fertilizer manufacturers think farmers can “mine” residual phosphate and potash from their soil for only so long before yields drop. Fertilizer must be replaced to keep the nutrients in balance.
Last fall’s delayed harvest in the United States and Canada prevented fall fertilizer applications, and the fertilizer companies think there will be big demand this spring.
That demand could increase depending on the crop mix.
An early forecast from the U.S. Department of Agriculture puts corn area at 88 million acres, up two percent from last year. Soybeans are seen at 76.5 million acres, down one percent.
Other forecasters see even more corn, perhaps 89 to 90 million acres.
Corn uses more fertilizer than soybeans so an increase in corn means more fertilizer demand.
PotashCorp also argues that fertilizer is affordable. It notes that if corn is priced at $3.50 per bushel and the average yield is 159 bu. per acre, then fertilizer cost as a percentage of corn revenue is 18 percent, the same as the average for the 1999-2008 period. Fertilizer is an even better deal if corn is $4 per bu.
Grain prices are another factor in fertilizer pricing. If they rise into spring, that will give fertilizer companies more latitude to boost prices. However, if crop prices, which have fallen recently, stay down, then there is less likelihood of sharply higher fertilizer prices.
