What is happening with fertilizer economics?
October 29th, 2009 by Robert SaikI captured these notes on the fertilizer industry…thought you might find this interesting.
Fertilizer Economics – Presentation by Ben Gavica – JR Simplot Company (Looking mostly at phosphate) at the CAAR Crop Forum in Red Deer
They feel that seeded acreage in the US will be down due to slow corn harvest in the US. This decline in acreage will be offset by higher predicted fertilizer use next year which should keep yields high.
The Fertilizer Industry is doing through a bit of a “hangover” since the “party” (ie highest prices) ended in December 2008. They did make some record profits, which allowed the industry to re-invest in some infrastructure.
There was push-back from the grower and there was a lot of emotion attached to fertilizer pricing. There was plenty of resentment towards crop inputs.
Today phosphate is roughly the same as Jan 2006. So what is going to happen now? The industry is also been affected by the world financial crisis. IFA estimates P demand worldwide was down 9.4% while they estimate reduction in NA was over 20%.
Demand side
Going forward we should see moderate consumption recovery with the exception of India which grew significantly due to government subsidization of fertilizer purchases.
64% of worldwide crop input demand is coming from China, India, USA and Brazil, with the real growth in P2O5 consumption being China followed by India.
NA market is “destocked” at manufacturer level, the pipeline is pretty empty and farmer’s field P levels have declined due to a mining mentality by the growers over the last couple years. The manufacturers readjusted the inventory levels pretty quick after the “hangover” set in. So they turned the production down.
With the pipeline at low levels and farmers continuing to have negative emotions towards fertilizer they predict some additional demand.
In the US corn belt there has been a significant decline in P levels in soils…this has been due to 2 years of cut backs….there is going to have to be some soil replenishment.
Simplot predicts a near-full P2O5 recovery for 2010…and are ramping up production.
Key drivers….what will happen with the ethanol? The US is still moving forward AND there is a nutrient requirement.
2009 yield was very high in US and France….there will be nutrient depletion…question is – how long will farmer’s resist purchases?
The indication is YES, that the growers will come back to the markets.
BUT there are some outstanding issues…economic crisis…access to credit…freight rates (less competition)
Supply side
Africa is 63% of the long term P2O5 reserves going forward.
By 2011 the Ma’aden project in Saudi Arabia could supply up to 15% of the world demand…and they are well positioned…and they have money for development. They could overproduce and push supply – increasing price volatility.
Morocco (OCP) will continue to expand production to 2014 (MAP / DAP / TSP)
China is linked to a huge rock supply. Their goal is self sufficiency so they have instituted export tariffs. They are going to expand significantly to 2014, but what will happen after this? They will concentrate on MAP / DAP.
Operating rates
Supply / Demand elasticity is unknown based on the unpredictability more so based on the supply side in the mid-term. In the short term it will be dependent upon what the farmers will do…how far will they deplete soils?
DAP production costs range from $US 210/ST Integrated Producer to +$310 for non-integrated producers…but these costs are likely to increase over time.
EXCEPT for China and Africa the quality of phosphate rock is diminishing – this will drive up production costs for most producers in the long term.
Lastly…how will technology impact what we use and how much we need.
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