Fertilizer Supply & Demand
Food security – having enough food to feed a growing population remains one of the greatest challenges facing humanity. As societies grow and flourish, citizens demand greater access to a diverse menu of nutritious foods and fertilizer is at the heart of that equation. In fact, experts estimate that 40 to 60 percent of the world’s food production is made possible through the effective use of fertilizer.
Fertilizer Use and Production are Subject to Many Factors
The nutrients that are necessary for plant growth come to U.S. farmers’ fields from a variety of sources around the world. As a result, fertilizer production and use are subject to many global economic factors including commodity prices, transportation costs, the cost and availability of natural resources, and the value of the U.S. dollar. While North America is a major fertilizer producing region, demand is also significant as the United States typically requires well in excess of 50 million tons of fertilizer materials for agriculture alone. The United States is also the largest importer of nutrients in the world, which leaves the country highly susceptible to changes in global markets.
Fertilizer Demand Plays a Key Role
Fertilizer demand plays a key role in the market situation. According to industry experts who provided presentations at the 2010 Fertilizer Outlook and Technology Conference, demand for the three major nutrients is expected to increase for the 2010/2011 crop year.
The Impact of Commodity Prices
The Russian drought and fires, strong world soybean exports, a cotton market that is in the fifth year in which use is greater than production, as well as lower estimated corn yields in the United States are all factors that are driving strong commodity prices.
Today’s Fertilizer Market
Today’s fertilizer market follows the 2008/09 tumble in crop prices which fueled a dramatic price-induced drop in domestic and international fertilizer use. Between their peak in October/November 2008 and December 2009/January 2010, fertilizer prices paid by U.S. farmers dropped 52 percent. The industry is once again experiencing strong crop prices, rising fertilizer prices at the wholesale level, and very tight fertilizer inventories. According to the U.S. Department of Agriculture (USDA), fertilizer prices paid by U.S. farmers are up 14 percent year-to-date (through November), but prices at the wholesale level have been rising more rapidly. Recent grain price increases have led to a spike in world fertilizer demand as farms are requiring additional inputs and buyers are scrambling to acquire available supplies for farm use and inventory replenishment. Higher demand, coupled with lower available fertilizer supplies in the August to October timeframe led to sharp increases in fertilizer prices.
Additionally, the market collapse of 2008/09 has resulted in risk-averse buyer behavior throughout the entire fertilizer distribution system. This means that system-wide inventories have remained low around the world with buyers holding less product that usual in the pre-2008 time period.
Lower fertilizer prices in early summer also had an impact by resulting in a higher level of plant outages, particularly in areas with high cost production, which includes regions in Eastern Europe and the former Soviet Union, as well as in areas of export-oriented capacity. Unexpected outages, including an explosion at a major exporting facility in Iran, further tightened availability.
How Can Farmers best Address Increased Fertilizer Prices?
Years of data and research results support the importance of best management practices and optimum fertilization rates, even at higher prices. According to International Plant Nutrition Institute Senior Vice President, North American Program Coordinator and Director of Research Dr. Paul Fixen, “The consequences of cutting fertilizer rates vary depending on several factors including soil test levels, cropping system, weather, and the current rate. Often, what may look like a good savings can result in more severe losses in yields and net returns this year or in the future. For most farmers who have a good production system in place, the best plan is to basically stay the course.”
Information on Fertilizer Prices
Fertilizer prices paid by farmers (retail prices) are reported by USDA and are available on its website in a monthly report entitled Agricultural Prices. Currently, USDA reports only the average price paid by specific fertilizer material during the month of March. In other months, USDA reports a monthly price index for (1) all fertilizer materials; (2) nitrogen; (3) phosphate and potash; and (4) mixed fertilizers, but these numbers are indexes and are not product specific. USDA’s monthly Agricultural Prices reports can be accessed by clicking here.