The conference hall was packed at the Fertilizer Outlook and Technology Conference last week in Charleston as industry watchers anxiously awaited word from the experts and industry insiders on what is in store for an industry that has been on a veritable roller coaster for the past year. Attendance was up this year, to 185 from the year-ago 182, according to The Fertilizer Institute, which sponsors the conference in conjunction with the Fertilizer Industry Round Table.
Most speakers were optimistic about the future despite the global financial downturn, saying that agriculture and fertilizer fundamentals remain strong. “It is going to be okay,” said Terra Industries Inc.’s Doug Stone, who gave the nitrogen outlook. “It is not like the sky is falling. There is still a bit of optimism out there. Even though it seems things may be crashing down around us, the fundamentals are in pretty good shape.”
Indeed, the speakers joined the chorus of many fertilizer CEOs in recent weeks to sing the same song ?Çô “People gotta eat.” Unlike cars, boats, and other consumer goods, food is a necessity, and farmers will be growing something next spring and buying fertilizer to maximize their potential.
Prodded by one questioner, Stone said he believes nitrogen consumption in the U.S. will be up next year by .5 percent. He expects increased corn acres, firm application rates, crop prices to incentivize nitrogen use, and emerging demand for nitrogen from power plants and the transportation industry. Stone said there could be a cloud over other industrial uses due to the general economy. He said there have to be strong imports of nitrogen into the U.S. to balance demand as the U.S. now gets over 50 percent of its nitrogen offshore. He said U.S. prices are going to have to be attractive to pull in those tons. Urea imports year-to-date have already been light, and he figures the country will need 11.4 million st to meet annual demand of 20.8 million, which will be up from this year’s 20.3 million st.
Andy Jung of CRU International explained that everything that could have driven up phosphate prices ?Çô did. This includes low carry overs, dollar depreciation, the Chinese leaving the market, high phos rock prices, and a pump up in soft commodity prices. The primary drive was strong demand. When pressed on the U.S. consumption for next year, Jung offered a 1 percent drop. Jung, as others, expects that international financial constraints will likely dim the chances of new capacity additions that are not already in the works.
On a worldwide basis PotashCorp’s Jeff Holzman saw a flat potash market in 2009. He said expected gains in China should be offset by lower tons going elsewhere, though he noted that China, India, and Brazil remain high growth areas for potash use, as they have not reached a mature level of usage. Generally, most speakers last week were concerned about credit constraints, particularly offshore. Holzman noted that potash demand growth for 2007-2013 is expected to be 3-4 percent per year. Holzman was hesitant to give an estimate on U.S. consumption for the current fertilizer year, saying potash movement in the fall will be down, while it will be up in the spring.
Barry Clarke of PentaSul Inc., while detailing the big swing up and down in sulfur prices this year, said for the next three years sulfur should be a fairly well balanced market. Any large surpluses are way down the road in 2011 and beyond.
Those assessments are for the fertilizer year as a whole and beyond. Questioners wanted to know about the near term. “For four-to-six months, challenges are widely evident,” said Holzman. While he expects turbulence during this period, he said the underlying fundamentals are optimistic for firm markets for the next five years.
Other speakers, as well as sources in the fertilizer market, said last week that the big problem is a rather full inventory pipeline, which includes high-price product in a low-price market. Sources said this is going to cause a lot of pain for some, and may put some players over the brink. Getting past the next four-to-six months financially intact is a big concern. Last week there was much speculation that several will have to take writedowns on their fourth-quarter financials. Others suggested that some who bought forward priced product may simply eat their deposits and walk away – if they can. Also last week, market sources were nervous because they fear the bottoms of most major products have not been found. Urea players were particularly skittish over the news that China might adjust export duties downward, freeing up more product for export.
Adding to the positive outlook for next year was Rich Pottorff of Doane Advisory Services. He expects corn acreage to come in at 89 million acres in 2009, up from 2008’s 86 million. He also noted the low corn and grain stock ratios and good demand for exports and ethanol. He noted that there are 178 operating ethanol plants in the U.S. with more on the way, and said that the incoming Obama Administration, as well as a Democratic Congress, will likely be supportive of biofuels. He said that the world adds 80 million people a year and we need to add another Canadian wheat crop each year just to keep pace.
He explained that the biggest reason for the drop in the corn price was the exodus of speculative and index funds from the corn market. He said they deserted the market in droves and billions of dollars.
Philip Abbot, a professor at Purdue University said the things to watch now are oil prices and exchange rates. He said that the corn price has been following the oil price, adding that corn prices would be lower if it wasn’t for biofuel. He said back in July it looked like the Euro might be becoming the world currency, but not now, as the dollar has rebounded and is being seen as a safe haven by some investors. On the flip side, a weaker dollar helped spur U.S. exports.