The United States currently stands as the world's second largest phosphate producer with a 10 million ton annual capacity. Nearly half of all of the phosphate the U.S. produces is exported. Domestic supply is strong, production is on the rise, and natural gas is soft enough to make DAP and MAP affordable to produce. But ammonia pricing has lagged behind the domestic natural gas boom and that vital feedstock must catch up to softer nattie before DAP and MAP show any meaningful declines in overall price.
Through the month of December 2012, all nutrients and farm fuels in the Inputs Monitor Weekly Index have fallen by at least a full percentage point with one glaring exception -- anhydrous ammonia.
Prices for delivered DAP and MAP have fallen over the past few weeks, but with ammonia in tight supply, equally tight production margins in the short-term may push phosphate-ammonium fertilizer pricing higher as the spring application season draws near and excites demand in the U.S.
As the major international population centers look to improve nutritional standards and increase food supplies, Middle Eastern and North African locations rich in phosphate rock ore are moving to increase production of phosphates for export to these growing markets. Experts believe that Morocco will drive global phosphate pricing once that nation improves production infrastructure as that country boasts 85% of the world's phosphate rock ore supply. Agrium Inc. has already agreed to begin importing Moroccan phosphate rock ore for DAP and MAP production rather than mining in Canada.
However, Morocco, like other North African and Middle Eastern countries, raises significant concerns over political instability and social inequality. The fear premium could play as much a role in this market as in the crude oil markets of previous decades, holding fertilizer importers hostage to political and social unrest on foreign shores.
It would be nice to say that since the U.S. produces so much phosphate domestically that DAP and MAP are inexpensive. Natural gas has recently found new three month lows, but ammonia pricing continues to buck the downward trend. This feedstock must fall in line with soft natural gas before domestic DAP and MAP find their true downside potential.