Farmers can usually count on a post-seeding decline in fertilizer prices lasting until early fall, but analysts say that isn’t happening this year and may not for years to come.
Spot prices for granular urea were $725 to $745 US per tonne at the Gulf of Mexico July 3, up from $660 to $668 June 5. The weekly fertilizer newsletter the Market says the trend is for continued rising prices.
Urea prices caught fire in late June as rice buyers stepped into the market at the same time that American growers began buying for the fall. The newsletter said rising corn prices caused by the poor condition of this year’s U.S. crop is another bullish factor for nitrogen demand for fall 2008 and spring 2009.
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The lack of summer price relief didn’t surprise Agriculture Canada analyst Xianqiang Zhang, who predicted that would happen in the March 28 edition of the department’s Bi-Weekly Bulletin.
He said he knew strong global demand would more than offset the normal seasonal slump in fertilizer sales.
“This is the reason the farmers have not seen the usual post-seeding decline in fertilizer prices,” he said in a recent interview.
What he didn’t predict was the magnitude of the price increase farmers would face. Zhang called for an 18 percent annual increase in urea prices in his March forecast, but they are already up 36 percent in Manitoba.
Zhang said his prediction for a 2008 average urea price of $646.98 per tonne underestimated the overwhelming demand generated by high corn prices and he was caught off guard by China imposing an export tax on urea, which has restricted global supplies.
Clyde Graham, vice-president of strategy and alliances with the Canadian Fertilizer Institute, said market disruptions such as the reseeding of a portion of the corn crop in the U.S. Midwest has a big influence in today’s environment of tight global fertilizer supplies. That will likely be the case for the next few years, he added.
Global urea supply for 2008 is estimated at 150.6 million tonnes, which is slightly more than the forecast demand of 150 million tonnes. Urea is the most popular fertilizer in Western Canada.
New fertilizer plants will gradually increase the supply to 184.3 million tonnes by 2012, while demand is expected to grow to 180.2 million tonnes, leaving a surplus of 4.1 million tonnes of product, according to a medium-term outlook issued by the International Fertilizer Industry Association (IFIA).
However, it will take awhile to attain that reasonable buffer level. The IFIA is projecting the surplus to be at or below two million tonnes for 2008, 2009 and 2010.
“That’s a very, very small surplus. It won’t really get into a significant surplus until 2011 and 2012,” Graham said.
And that’s assuming the new capacity is added as planned, which is a leap of faith because the projects are expensive and some are being built in politically unstable areas of the world.
In its report, the IFIA said it can already be assumed that some of the projects planned for 2008-2012 will be delayed or cancelled in the near-term and that some further rationalization of supply could occur in Europe and South Asia.
Graham has already heard of delays with a significant project in Egypt that could throw the forecast off.
Zhang agreed with the outlook for continued tight supply, which means farmers may have to kiss the post-seeding price dip goodbye for another three years.
Rising global population, heightened crop demand in Asia and Brazil and the booming biofuel industry will continue to pressure global food supplies in coming years, which means higher food prices and continued strong fertilizer demand.
“If the demand continues to increase, it is reasonable to believe the fertilizer supply will continue to be tight until 2011,” Zhang said.
