Price relief for fertilizer may be on the horizon, says a U.S. market analyst, but farmers shouldn’t expect a decrease in time for this year’s seeding.
“After the spring … prices will start to drift down,” said David Asbridge, client development manager and senior economist with Doane Advisory Services in St. Louis, Michigan.
“If forced (to make a prediction) I’d say a year from now we’d be $100 US a tonne cheaper than we are now for urea … which would be a 15 percent decrease.”
Asbridge, who presented the world fertilizer outlook at GrainWorld in Winnipeg Feb. 25, told the audience that increased world production should reduce prices for nitrogen, phosphate and potash.
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“We’ve got capacity growing faster than we’ve got demand growing,” said Asbridge at the grain and livestock conference hosted by the Canadian Wheat Board.
He said several new ammonia and urea plants would be completed around the world in 2008, primarily in the Middle East.
By 2012, world phosphate supplies should receive a boost when construction of the world’s largest diammonium phosphate plant in Saudi Arabia is completed.
Asbridge also expects world potash production to rise over the next five years, but overall, the increases in world production of fertilizer will not result in dramatically lower prices.
“I don’t think they’ll ever go back to those levels,” where prices were five years ago, he said.
Growth in fertilizer production will, as a percentage, exceed demand growth over the next five years. But world demand will keep prices high.
Asbridge said the surge in North American fertilizer prices began five years ago due to increased world demand and rising natural gas prices.
From 1990-2002, world demand grew 1.1 percent each year for nitrogen, and then jumped to 3.7 percent annually from 2002-07.
At the same time, natural gas prices rose sharply in North America, prompting U.S. fertilizer makers to cut production.
According to the U.S. Department of Agriculture, the price of ammonia was $227 US a tonne in 2002 and rose to $523 by 2007. Urea also shot up over the same period, rising to $453 a tonne from $200.
Although Asbridge made a solid case for market fundamentals driving up prices, a few farmers listening to his presentation were not convinced.
“It’s inventory control and shareholder’s valuation,” said Leo Meyer, who farms near Grande Prairie, Alta. He suggested that fertilizer makers are reducing output to drive up prices and their stock price.
Another farmer at GrainWorld asked Asbridge if the major fertilizer producers are colluding to keep prices high. Asbridge was reluctant to use that word, but did say it made economic sense to keep supplies tight.
“The major (North American) producers are going to be careful about adding capacity. As an economist, it’s just good business, what they are doing.”
However, Asbridge added that in the long term, North American production of fertilizer will decline because the business will shift to countries with cheap natural gas.
“At $7 to $8 gas (per million BTUs) we just compete with companies overseas that have access to gas at 50 cents to $2.”
