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NPK Insider

RSS By: Glen Buckley

NPK Fertilizer Advisory Services provides you with the information, analysis and recommendations that can help you decide when and at what price level to buy your fertilizer.

Managing Fertilizer Risk

Nov 18, 2011

Click here for more information and a free 30-day trial of the NPK Insider.


The fertilizer market has been through some amazing volatility over the past few years. From the last "normal" level seen back in 2007 to the record peak in 2008 to the valley in 2009 and back to the current high prices, farmers have had to try and figure out what was going to happen next. We hope this blog will give you a better idea of what is driving these changes and what may be coming next. We plan to update this every month and hope to see you back here then.

As a general overview, both demand and prices this year are expected to remain above year-ago levels. Prices for most of the major products, however, appear to have already peaked and are forecast to trend somewhat lower heading into the spring season. We don’t see supply as an issue for any of the major NPK products.  Nonetheless, while we see prices trending lower, strong demand across the board should help keep a relatively high floor under the markets and prevent any major downturn in pricing and/or a repeat of what happened in 2008. 

Almost perfect weather at this time last year, combined with rising grain prices, resulted in one of the strongest fall fertilizer application seasons on record. Ammonia was particularly strong with demand up an estimated 40 percent from 2010, climbing to its highest level in almost two decades. Phosphate and potash demand were also up significantly from the prior year. 

While the fall was exceptionally good, the spring pre-plant application season turned out to be exceptionally poor. Wet weather across just about all of the major growing areas virtually shut down the early season application market. Following the boom-bust roller coaster, the pre-plant market was followed by one of the best nitrogen side-dress application seasons on record. Although no "hard" data is available on how much was actually applied, both producer and downstream inventories were virtually wiped out by the end of the fertilizer year.

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The fertilizer market over the next year is going to depend to a large extent on the corn market. As shown in the above chart, corn accounts for almost half of total U.S. fertilizer demand. The combination of tight stocks and a projected record season average farm price for 2011 is expected to push 2012 corn acreage into the 93-94 million acre range. This should set the stage for a relatively strong fertilizer year with total demand forecast to increase 7.1% over last year and approach the recent peak in 2007 of 22.9 million.

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Fertilizer Prices: Fertilizer prices typically follow a cyclical pattern where prices fall back at the end of the spring season as producer/suppliers liquidate carryover inventory and move production downstream and then begin to escalate as the market moves close to the application season. Not this year. In fact prices not only didn’t move lower, they actually moved higher with nitrogen climbing over the summer by another 30-40%.  The main reason – rising corn prices combined with an increasingly positive outlook for fertilizer demand.

So where do the markets go from here? In our opinion, the markets in general appear to be at, or close to their peaks with prices expected to trend lower heading into the spring season. Although the outlook for fertilizer demand continues to look positive, the drop in corn prices from this summer’s record has certainly taken some of the bullishness out of the fertilizer markets.

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Recap: While we expect prices to trend lower, don’t expect to see any major downward shift similar to what happened in 2008-09. While supply is improving, strong demand this fall and next spring should keep the overall fertilizer balances in reasonably tight positions and, in turn, help keep a relatively high floor under the market.

Click here for more information and a free 30-day trial of the NPK Insider.


 

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