Editor's Note — This is the second in a three-part series that explores the outlook for fertilizer for the 2009 cropping season.
Demand for phosphorus fertilizer is expected to increase slightly for 2009 globally, with the U.S. likely to have a slight drop in use in the coming crop year.
One of the most commonly used fertilizers in the Southeast is diammonium phosphate (DAP), commonly referred to as 18-46-0, cost $249 per ton in 2003. Last spring it cost $751 per ton and some economists forecast its cost to move to $1,000 per ton in 2009.
The worldwide economic crisis has put a question mark beside that projection, leaving most farmers in a wait-and-see mode for DAP and MAP ((monoammonium phosphate).
Corn and soybean prices have many upper Southeast growers backing away from cotton, peanuts and tobacco. Despite volatile pricing for these crops, the high cost of fertilizer may cause growers to take a second look at getting into the grain business.
For example, fertilizer costs for corn in 2009 are projected at $150-$250 — a huge price gap, depending on the cost of N-P-K fertilizers. Soybeans may not be an input-saving option considering fertilizer costs are pegged at somewhere near $100 per acre, up more than $50 per acre from 2008 levels.
The caveat, most economist agree is the volatility of nitrogen, phosphorus and potassium prices worldwide
Andy Jung, senior manager, with British Sulpher Consultants, says three factors will determine use, availability and to a large measure price of phosphorus for the 2009 cropping season. These include: A gradual slowdown in world population growth from historical levels of 1.5 percent to 1 percent.
A second factor is income growth worldwide, which is increasing faster than historical trends, particularly as large Asian populations push on with rapid economic development plans. Global GDP, Jung says, will grow at over 2 percent per year for the next few years.
A third factor is the continued gradual increase in arable land worldwide, combined with a faster decline in arable land per capita. This increases the demand on a global basis for farmers to produce more food on fewer acres.
All these factors, Jung says, push demand up and increase the demand worldwide for fertilizer.
In 2008 farmers saw some of the results of these global factors coming together to produce huge spikes in fertilizer prices. Distributors of fertilizer products continue to deal with this problem into 2009, as they try to sell fertilizer bought at ultra-high summer 2008 prices for lower prices going into the 2009 cropping season.
Jung says, “Essentially, there was the proverbial ‘perfect storm’ of
conditions pushing phosphate prices higher.” This perfect storm included the following elements:
Relatively low carryover stocks in 2006-2007.
Depreciation of the U.S. dollar.
Pumped up soft commodity prices — driven initially by fundamentals, followed by speculation.
Restriction of Chinese exports of DAP/MAP and phosphate rock.
Feedback loop, whereby higher downstream prices promoted higher raw material prices and vice versa.
Going into the 2009 U.S. growing season, all world regions forecast to have steady or higher demand going forward, following a rebound from the current economic downturn. Global growth will be led by Brazil and Asia.
On a regional basis, demand for ethanol and other biofuels in the U.S. and western Europe will promote modest demand increases.
Overall, global phosphate demand is expected to grow 2.1 percent per year over the next few years. Long-term improved technology is expected to slow down demand for fertilizers worldwide, Jung says.
Over 75 percent of the world's phosphate supply is mined in North Africa and Russia. In 2007 just over 300 million tons of phosphate rock was mined worldwide. In 2009, phosphate rock mining is expected to dip below 300 million tons.
Despite the reduction in available phosphate, Jung says, firm new phosphate rock capacity is expected to exceed demand growth, and there remains a risk that an over-supply situation could occur, particularly if North African producers meet stated expansion plans.
Phosphorus prices trended downward in the last quarter of 2008. Jung says it's now a matter of whether these prices ease gradually or crash.
The factors that have driven supply and demand of phosphate fertilizers up to the fall of 2008 now have a few new guiding forces. Strong global demand has been seen, but demand destruction has finally shown itself, Jung says. He says the following factors will drive the volatility, or lack there of for phosphorus-based fertilizers in the next few years:
High capacity utilization (likely to slip as new capacity in 2008-2012 should ease the supply crunch).
Historically high input costs are trending lower.
Tight crop stocks may be offset by expectations for an increase in planted area with conservation land being put back into production in the US and EU, as well as new land in Brazil and other parts of the world. Forecast for a strong harvest this year could create an easing off of demand growth due to global economic slowdown.
Increased industry concentration in the rock export market remains, though it will diminish with new projects.
On a regional basis, the volatility in fertilizer prices is forcing many growers in the Southeast to more closely evaluate the demand of one crop for nutrients versus that of another and compare relative input costs to projected crop prices. The result is a big waiting game to see whether fertilizer prices continue to trend downward or risk an upward spike similar to the summer of 2008.
Coming off a good crop and price year should make growers more optimistic going into 2009, but extreme fluctuations in input costs leave most in a wait-and-see mode, especially for fertilizers.
Some growers, especially in the Carolinas, may consider more use of lower cost poultry litter as a substitute for synthetic N, P, and K. Though it can be an excellent compliment to commercial fertilizers, widespread use can have some drawbacks, especially in replacing phosphorus.
Poultry litter has a high phosphorus concentration relative to nitrogen. Poultry litter application rates should be based on phosphorus levels, not nitrogen levels, to avoid potential water contamination problems.
Volatility is the name of the game for farm inputs in 2009, and fertilizer cost is at the top of most growers list in things to watch before determining planting for the upcoming cropping years. According to industry analysts, phosphorus-based fertilizer prices will be more stable in the long-run, but for the 2009 crop will continue to be driven by external forces.