Fertilizer use during the period fell by 9 percent for nitrogen, 23 percent for phosphates and 30 percent for potash. This led to “overcapacity in the industry and a very poor investment environment with respect to planning a new plant or mine.”

For the next five years, 1995/1996 through 2000/2001, “world nutrient demand rose by only 7.9 million nutrient tons. We were still 5 percent below the peak of 1988/1989. Nutrient use actually fell in the United States in this period but the drop was more than offset by an increase in the rest of the world. Overall, world demand rose by only 1 percent a year during this period.”

While showing a chart illustrating the number of acres of world grains harvested and total world grain production, Vroomen said ultimately it is “agriculture that demands fertilizer demand and it was that demand which turned things around.”  The chart shows “the number of acres harvested peaked in 1981 and is still down 5 percent from its peak. Yet, world grain production is up more than 50 percent since 1981.”

At the time, 2004 to 2008 experienced “the largest levels of world grain production on record. All exceeded 2 billion metric tons. These record crops required significant nutrients and are the driving force behind the recent increase in world fertilizer demand.”

From 2000 to 2007, fertilizer “world demand grew by nearly 23 percent … for an average of over 3 percent a year. Nitrogen use grew by 22 percent, phosphate by 17 percent, and potash by a whopping 31 percent.”  

The majority of this growth took place in China, India and Brazil.

“Chinese and Indian agriculture initially focused attention on the nitrogen side of the fertilizer market in order to increase yields. They eventually ran into phosphate deficiencies which limited further yield growth. (They, then) focused on increasing phosphate demand. A similar thing happened on the potash and they’re now more focused on potash use. … This means that world potash demand should continue to grow quicker than nitrogen or phosphate in the future.”

Vroomen pointed to the connection between natural gas and fertilizer. “As a primary feedstock for ammonia production, historically the cost of natural gas alone accounted for 70 percent of total ammonia production costs. All that changed when U.S. natural gas prices rose dramatically after 1999.”

U.S. natural gas prices — “which historically averaged below $2 per million BTU” — quadrupled to over $8 by 2005. With such prices, natural gas accounted for nearly 90 percent of total ammonia production costs.

The consequences of this on the U.S. nitrogen industry were dramatic. “As gas prices rose, and continue to rise, producer margins were squeezed and eventually turned negative. A total of 25 ammonia plants (about 40 percent of total production capacity) closed from 1999 through 2005.”

The drop in domestic production shrank U.S. nitrogen supplies and raised prices. The United States then turned to the world market for nitrogen and, from 1999/2000 to 2007/2008, “imports rose from 6.3 million nutrient tons to 11.7 million nutrient tons annually. And this happened at the same time we had a dramatic increase in world fertilizer demand.”

The U.S. fertilizer industry — “which typically supplied 75 percent of farmer’s nitrogen needs from U.S.-based plants prior to 2000 — now relies on imports for over half of its nitrogen supply.”