Row crop planting across the Southeast has generally been ahead of schedule this spring, but fertilizer sales have not kept pace with early planting, primarily because of the unpredictability of both price and supply of nitrogen and potash in recent years.
The uncertainties of price and supply at the farmer level have translated into lower supplies among fertilizer distributors. The risk of owning product too early in a market that is trading near its traditional peak value has kept suppliers from buying large quantities of popular fertilizers.
In the U.S., fertilizer sales are running slightly behind last year, despite the prediction that U.S. corn farmers may plant a record crop this year and an estimated 57 million acres of wheat are in the ground.
Harry Vroomen, vice-president for The Fertilizer Institute says the increased demand for fertilizer is not being pushed by increased acreage, rather by increased demand for higher yield.
The current high prices of crops and subsequent increase in demand for fertilizer drives the need for high yielding crops, he says.
Therefore, having more acres in the ground may not be an accurate indicator of demand for fertilizer. More importantly number of acres planted may not have a direct bearing on price of fertilizer throughout the growing season.
Fertilizer suppliers are in a no-win situation. If they buy now, they may be stuck with products that are over-priced by the middle of the growing season. If they delay buying supply, they may miss peak demand by farmers.
In the long-term, most analysts seem to agree that waiting too long to position supply could be a bigger economic problem than getting stuck with too much product too early in the season.
Farmers are in an equally dicey predicament. If they bought their fertilizer early in the year, they may have missed out on expected drops in nitrogen prices in the second half of 2012.
If the price drop comes early enough, most growers in the Southeast can still get products on crops during the season. If price drops are delayed, they may pay higher prices near the peak of the sales cycle in late spring and early summer.
Most used outside of U.S.
Vroomen points out that 86 percent of the world use of fertilizer is outside the U.S. It’s often the case, he says, that what has happened or is predicted to happen with crops in China, India, and Brazil has a bigger affect on fertilizer dynamics than what happens in the U.S.
In the past seven years increased demand for nitrogen has gone up by 23 percent worldwide. In that same time frame, demand for potash has increased by 32 percent worldwide.
The biggest increase in demand for these two crop nutrients came from China, India and Brazil.
Vroomen says that as yield expectations for crops increase worldwide, so will demand for nitrogen and potash.
Food production and fertilizer use vary widely from one region of the world to another, Vroomen points out. Worldwide, about five tons out of every six tons produced is used domestically. The amount of exports from crop to crop varies widely, from less than 10 percent for rice to about 35 percent for soybeans, but about 85 percent of the crops grown worldwide are consumed in the area in which they are grown.
In contrast, more than 40 percent of the world’s supply of fertilizer is sold outside the region in which it is produced. Ocean freight prices rose to record levels in 2008, and have been at high levels since that time, Vroomen points out. Freight costs alone add to the instability of fertilizer supply and demand.
Vroomen contends three primary factors — ocean freights, natural gas prices, and the cost of diesel fuel have a direct impact on fertilizer prices.
From a positive standpoint for 2012 prices, Vroomen says ocean freights and natural gas prices are down. Diesel fuel prices were on the rise in the first quarter of 2012, and remain high, but have fallen somewhat in the past couple of months.
Another positive indicator that fertilizer prices may stabilize throughout the growing season is increased production worldwide.
The International Fertilizer Association predicts there are as many as 250 projects in various stages of development globally that will increase fertilizer availability between now and the end of 2015.
The good news is that three new, large nitrogen plants are due to come on line this year. This increase in supply will likely have a positive impact on growers by lowering input costs.
The bad news is these new facilities are in the Middle East and Eastern Europe — two typically unstable regions of the world.
U.S. largest importer
The U.S. is the largest importer of fertilizer. In 2012, U.S. growers are expected to use more than 11 million tons of imported nitrogen.
Total fertilizer imports are expected to reach 20 million tons this year. In the past seven years, U.S. demand for nitrogen has increased by nearly five million tons.
Prices for two popular sources of nitrogen, UAN and DAP, look promising for the latter part of the 2012 growing season. Strong seasonal demand for urea and UAN will likely keep UAN prices at current levels in the short-term.
Lower prices for urea in the first quarter of 2012 is a primary reason for expected stability in the UAN market.
DAP and MAP demand has increased in recent years and is expected to remain high for the upcoming planting season in South America, combined with high levels of DAP purchases in India have moved DAP prices up for U.S. importers.
At the farmer level, there is likely to be an increase in DAP pricing early in the growing season, with some possible price stabilization later in the growing season.
Vroomen says the price of DAP and MAP are centered around three primary ingredients: Phosphate rock, sulfur and ammonia.
Huge rises in sulfur prices, because of increased demand in China and equally large increases in ammonia costs were the primary factors in price increases for DAP and MAP over the past 6-7 years, he contends.
Vroomen says supply likely will be a bigger issue for potash in the future. He says there are only 13 countries in the world that produce potash and only 10 countries export it. China and the U.S. are the largest importers of potash.
Again, he says, what happens in other parts of the world are likely to have a bigger impact on potash prices than what happens with crops in the U.S. over the first few months of the 2012 planting season.
High yield expectations are likely pushing potash purchases in the Midwest, where record corn and high soybean acreage is predicted.
However, early season demand has not pushed potash prices up significantly. As demand for pre-plant buying for huge grain acreage end, there is some likelihood that potash prices will drop some later in the growing season.
For row crop farmers in the U.S. the supply and price for fertilizers for the 2012 season is about normal, or as one North Carolina cotton farmer quips, “It’s normal, about as clear as mud.”