Like most of the stuff you buy at Wal-Mart, more and more of the fertilizer you use on your crops is going to come from China, the Mideast, or other foreign sources.
As U.S. operations continue to cease production of nitrogen-based and other fertilizers and overseas manufacturers increase theirs, growers here are going to be increasingly dependent on foreign sources, says David Asbridge, president and senior economist for NPK Advisory Service, Inc., an independent consulting firm that covers the domestic and global crop and fertilizer markets.
“We’ve been an importer of nitrogen for years, but the percentage just continues to creep upward — now at almost 55 percent of total U.S. nitrogen supply,” he said recently. “And that means we’re really not setting the price for nitrogen fertilizer in the U.S. any more.
“In 2000-2001, when natural gas (a primary feedstock for nitrogen production) spiked from about $2 to $2.25 per million BTUs to over $20, the fertilizer industry in the U.S. took a very substantial hit.
“More than a third of that industry won’t ever be running again. Most of the big nitrogen plants which are now operating in the U.S. are about 40 years old, and no new ones are being built, so we’re going to continue to be more and more dependent on imports.
“Most of the growth we’ve seen the last couple of years has been in China. They’ve become very aggressive in producing nitrogen fertilizer, using a coal gasification process rather than natural gas as the main feed source. China and India now account for roughly 45 percent of the world’s nitrogen fertilizer demand.”
The fertilizer industry has become extremely volatile over the past couple of years, Asbridge notes, “which has made it difficult for fertilizer dealers, distributors, and users to know what is going to happen next.”
Nitrogen has cycles like corn and most commodities, he says. “Over time, we have low prices, which stop growth in production capacity. Then price picks up and production increases, resulting in oversupply, and the market falls off again.
“We’ve kind of passed over a peak right now and prices are heading down, which means production growth should be slower than demand growth. That should be good for nitrogen prices worldwide for the next few years.”
The problem, Asbridge says, is that “even though fertilizer prices right now are relatively good, dealers aren’t stocking up. They got hit so badly two years ago buying high-priced fertilizer and then the market fell out from under them, leaving them stuck with a lot of high-priced inventory, so they’re somewhat leery of doing that again.”
The U.S. imports about 45 percent of its ammonia supply, he notes. “A fairly large part of the U.S. industry is producing ammonia again because of the relatively cheap natural gas prices. Because of the transportation differential, we can compete right now, and the industry is running flat out with production.”
Natural gas prices, which are indirectly related to fertilizer costs, particularly nitrogen, are at a relatively low level now and the Energy Information Administration is expecting prices for natural gas to be relatively calm over the next few months, Asbridge says.
“The long-term trend for fertilizer prices isn’t all that bad. Right now, we’re actually a little on the low side of the trend.
“The value of the dollar also has an impact on fertilizer prices, particularly if you’re talking about a ton of urea that’s coming out of the Middle East, which is where most of the urea production growth has been.
“If you’re paying for it in euros versus the dollar, there has been a big change — almost 40 percent as the value of the dollar has fallen against the euro. This has a direct impact on what we’re paying for fertilizer because we’re so dependent on imports, which now account for roughly 55 percent of the total U.S. nitrogen supply.”
The U.S. has also become increasingly dependent on overseas production for urea, which is “the world standard for nitrogen fertilizer,” Asbridge says. Imports now account for roughly 70 percent of the total U.S. dry urea supply.
“North America is about the only place that applies ammonia directly to the soil, but dry urea is used everywhere else in the world.”
The U.S. is “a lot less dependent” on the world market for UAN liquid nitrogen, he says; about 25 percent of the total U.S. supply is imported. “The reason is, there’s not much excess production capacity outside the U.S. for export. As agriculture in Eastern Europe and elsewhere gets stronger, they’re using more of their own production.”
U.S. nitrogen consumption was off fairly sharply last year due to price, weather problems, and other reasons, but Asbridge says, “I think we’re going to see a pretty good rebound in consumption this year — although nowhere near record levels.”
World phosphate use saw a 1.6 percent growth from 1990-2001 and another 4.9 percent in 2001-2007, he notes. “India has become the big leader in what’s going in world trade, now accounting for about half the world’s DAP trade. They don’t have phosphate reserves and they will continue to have a big impact on the world market, including the U.S. And China, which used to be a huge importer, has become self-sufficient in phosphate production.
“We have to go back to the 1960s to see U.S. phosphate consumption as small as the last two years, when farmers dramatically cut rates, but I think we’re going to see a comeback as we go through the 2010 crop year and producers plant more corn acres.”
World potash production is expected to grow from 61.3 million tonnes in 2007 to a projected 73.5 million tonnes in 2015, Asbridge says. “China has really increased its imports of potash, and that’s where most of the additional production is going.
“But all this new production means you’re probably not going to have to pay $1,000 a ton for potash going forward. Potash prices haven’t fallen as sharply as those for N and P, because of a worker strike in Canada and closure of a Russian mine, both of which pulled inventories down. But I don’t think we’re going to see any price increase in potash for the short-term.
“I think U.S. potash consumption was hit worse last year than nitrogen or phosphate. Farmers just seemed a bit more unhappy with potash prices, and those who had their fertility levels pretty high cut back or did without it altogether. But they can’t continue doing that going forward; I think going we have to see some application rate growth in order to get the corn and soybean yields that farmers need.
“I think we’ll see nitrogen prices continue to increase on through the spring season and then begin to drop off, and pretty much the same for phosphate prices.
“In normal times,” Asbridge says, “we’d expect potash to do that, too, but I don’t think we’re going to see that this year. I think potash is going to flatten out, and it will depend on how big a spring season we have as to what kind of prices we’ll see this fall.
“Even though inventories are coming down for nitrogen and phosphate products, potash still has a lot of inventory out there. If we have a really good spring season, there could be a bit more price activity going into the fall, but at this point I’m not encouraging anyone to go out and start buying potash.”
For corn this year, Asbridge says, “I think we’re looking at an increase in budget prices for fertilizer. That kind of flies in the face of what USDA is saying — that prices are going to go down. I don’t think so. I think we’re going to see prices as much as they were last spring, or in the case of potash, maybe a bit higher.”
More information on fertilizers and the outlook can be found on Asbridge’s Web site, npkfas.com.