Mike Rahm of the Mosaic Company led the 2007 Fertilizer Outlook and Technology Conference’s Tuesday session with a bullish outlook for potash in 2007. The potash market looks increasingly tight in 2006/07 due to improved global demand and the loss of Uralkali’s Berezniki 1 mine, Rahm said, adding that the “supply shock” of the Uralkali mine failure will reduce global potash supplies by 1.2 to 1.4 million mt KCL. Any other surprise – such as additional losses, delayed expansion startups, and stronger or earlier demand – will likely tighten the market further.
Rahm said Canadian potash exports are projected to rebound 50 percent this year from the low of last year, while domestic shipments are expected to jump 22 percent. Projected exports are 25 percent greater than the three-year average, and 37 percent greater than the five-year average, he noted. Potash import demand is projected to rebound to record levels, while Chinese potash imports are forecast to rebound 17 percent, or 900,000 mt, from the lowest levels in 2006.
Indian fundamentals remain positive, he said, with potash imports expected to rebound 33 percent, or 700,000 mt, in 2007 from the low in 2006. No potash recovery is expected in Brazil in 2007, but the oilseed markets there are beginning to perk up.
The higher domestic potash demand is being driven by growth in U.S. corn demand and better corn prices, with the 2007 new crop price climbing steadily since mid-September. Referring to the recent $1/bushel increase in corn prices, Rahm talked of the “good correlation” between corn prices and potash application rates, and predicted that U.S. potash use will rebound 7-8 percent in 2006/07 due to more corn and a partial recovery in application rates. U.S. potash imports from offshore origins are forecast to decline this year, he said, while North American production is off 17 percent so far this year compared with the first three months of last year.
When asked if the 2007 planting season will see any shortages due to transportation issues, Rahm said he was “reluctant to cry that the sky is falling, but the odds are elevated this year” because of the amount of product that must be moved within a shorter time frame. Rahm added that this supply issue is compounded since many retailers are “gun shy because of the tremendous volatility we’ve seen.” He said the industry has seen a lot of interest in risk management tools to deal with pricing volatility in an era of high energy prices. “It’s a challenge for the industry, and we’re trying to do some things to share the risk,” he said. “It’s the volatility that kills, and anything to reduce that volatility will help.”
Corey Giasson of PotashCorp gave the phosphate outlook, noting that domestic phosphate fertilizer shipments are projected to pick up. Domestic consumption is forecast to be up 10-15 percent in 2006-07 due to rising grain prices, along with more corn and wheat acres. The upturn follows two years of consumption cutbacks, however, with consumption down 3.9 percent in 2004/05 and 10-15 percent in 2005/06 when compared to the 2003/04 year.
Giasson said global DAP, MAP, and TSP demand will increase this year in key markets, with phosphate demand in China the largest of any country and expected to grow by 4 percent in 2006/07. China will become a net exporter due to increased domestic production, but will continue to import about 1.3 to 1.5 million mt through the end of the decade.
DAP and MAP demand continues to increase in India, which has now replaced China as the world’s largest phosphate importer, with 2.5 million mt of imports needed in 2007. As for long-term supply issues, Giasson said the additional production slated to come online in Saudi Arabia in 2010 will cause the global phosphate market to weaken.
Giasson also addressed the question of planting season supplies at the retail level, noting that “just-in-time delivery is obviously very tough in this industry.”
Agrium’s Jeff Holzman said North American nitrogen demand will be driven by increases in corn and wheat acreage, rising crop prices, and positive farm cash flow. Although farm input prices are likely to remain high, Holzman said U.S. nitrogen demand should be up 5-8 percent in 2007 after two years of declines. He added that improved agriculture fundamentals will also favor increased global demand for nitrogen, and this demand growth, along with some plant closures, should offset new capacity.
China’s urea export volumes have been a major swing factor in the global urea market, Holzman said, with China’s urea exports going forward likely to remain in the 1-2 million mt range. He noted as well that India is now the second largest global urea importer.
Holzman said nitrogen production costs have more than doubled in key export and import regions, and new nitrogen capacity is being located in regions with access to low cost gas. Other trends include the continued decline of ammonium nitrate use, as well as rising handling and transportation costs associated with anhydrous ammonia. Noting Agrium’s efforts in the controlled-release market, Holzman said controlled-release nitrogen will have “a nice fit” over the long term.
Chris de Brey of The Sulphur Institute said hurricanes Katrina and Rita heavily impacted sulfur production in 2005 and well into 2006 across all categories, with production trending back upward in 2007. As for the sulfur consumption forecast, de Brey said the strongest growth will occur in developing regions such as East Asia, Africa, and Latin America, with declines in Western Europe and North America due to the closure of phosphate plants. Fertilizer remains the largest use of sulfur, and this is projected out through 2015 with a 2 percent annual growth rate for phosphate fertilizer as a major demand source for sulfur.
Rich Pottorf of Doane Advisory Services gave a bullish crop outlook overall, noting that world grain production is falling short of consumption, and stocks-to-use ratios for corn, wheat, and rice are about as low as they’ve been since the early 1970s. Corn stocks are large but falling, with ethanol production and exports fueling the growing demand. Corn used for ethanol increased 20 percent last season and will rise by 30 percent in 2006/07, he said, calling this increased demand “the heart of the story.” Corn acreage in 2007 will need to rebound “a lot,” he added.
The outlook for soybeans, by contrast, is “not great,” Pottorf said, noting that stocks are high after acreage increases in 2006, with demand showing little growth. Soybean acreage in 2007 will decline, especially in the Cornbelt, but bio-diesel remains a positive and “surely will grow.” Pottorf said sizable demand is expected for soybean oil over the long haul for the bio-diesel industry.
The outlook for cotton is declining, Pottorf said, with acreage reductions expected in 2007. This year’s crop was impacted by drought but still produced the third largest yield on record, and a new forecast of 20.7 million bales has resulted in price weakness. As for wheat, Pottorf said 2-2.5 million more acres of wheat will be planted this year after a 2005/06 production year heavily impacted by drought, but wheat acreage overall has been falling and the long-term trend remains down.
On the farm level, Pottorf said crop cash receipts will be up in 2006, and farm income will stay well above the average. As for the spring 2007 fertilizer season, Pottorf said “demand is going to be really strong, and I think [the retailer] knows that.” Concerns about fertilizer pricing volatility notwithstanding, Pottorf said, “If I’m a retailer, I want to be loaded up.”