Farmers should prepare for higher fertilizer prices, but nothing like they experienced in 2008.
The latest crop production estimates from the United States Department of Agriculture will likely push nitrogen prices higher during the next couple of months, says a fertilizer industry analyst. But in the longer run, prices won’t jump rapidly like they did three years ago because supply is growing faster than demand.
David Asbridge, president and senior economist with NPK Fertilizer Advisory Service, said the USDA estimates released Aug. 11 will encourage farmers to plant more corn next spring. That will boost demand for ammonia and urea.
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“What this means, is the corn situation is going to end up tighter than what we were thinking,” said Asbridge.
USDA analysts predict the corn carryout for the 2011-12 crop year will be 714 million bushels, five percent less than grain traders expected.
“It’s the 2011 crop that’s in the ground now that is the problem. We’re going out with a little over 700 million bu. What that is going to do, it’s going to increase the possibility of us growing more corn relative to soybeans in 2012,” he said.
The expectation of more corn acres in 2012 should push prices for nitrogen fertilizer higher this summer and possibly into the fall because more corn requires more nitrogen, said Asbridge.
“Across the U.S., we’re averaging 140 pounds of nitrogen per acre for corn,” he said.
If fertilizer prices rise this fall, they will continue a run up in prices that began more than a year ago. Using U.S. Midwest wholesale prices as an example, Asbridge said urea sold for $320 per ton in August of 2010 and is selling for $520 per ton this month.
Last August, ammonia was $550 per ton, compared to $700 per ton this summer.
Farmers are also paying more for phosphate. Last August, diammonium phosphate was $630 per ton, while a year ago, it was $480 per ton.
But a repeat of 2008, when anhydrous ammonia topped $1,000 per ton is unlikely because the fertilizer industry has learned that farmers can only be pushed so far, Asbridge said.
“The (fertilizer) producers, the wholesalers and retailers know that the farmers do have a tipping point, where they say that’s too much, we’re going to cut back … or shift more to soybeans.”
The market psychology should keep a lid on prices in the short term. Asbridge said the supply of nitrogen fertilizers is growing rapidly as countries outside of North America are building plants and expanding capacity at existing facilities.
“I think we’re probably at the top of the market right now,” he said. “We could see a little bump up in prices over the next few weeks…. But I think when we get to the end of the summer and the middle of the fall, we should see a little pressure come off because of the supply situation.”
In its 2011 market outlook, the International Fertilizer Industry Association said the global nitrogen supply would grow 3.7 percent per year between 2010 and 2015, while demand will grow at 2.3 percent per year.
According to the IFA, 67 nitrogen fertilizer plants, now under construction around the globe, will officially begin production between 2010 and 2015, with one-third of those facilities in China.
The expansion will add 19 percent to the world’s ammonia capacity and more than 20 percent to the supply of urea from 2010 to 2015.
Consequently, the world surplus of nitrogen may grow from 3.8 million tonnes or 2.8 percent of supply in 2011 to 15.1 million tonnes or 9.7 percent of supply in 2015.
The supply and demand story is similar for phosphate because the world’s largest phosphate facility, the Maaden plant in Saudi Arabia, is now complete and beginning to operate.
