The International Fertilizer Industry Association (IFA) sees better consumption ahead in its new Short-Term Fertilizer Outlook 2009-2010. Tentative forecasts for global fertilizer consumption in 2009/10 point to a small rebound of 1 percent, to 158 million mt. IFA says projections indicate a full recovery for nitrogen (+1.6 percent), a small rebound for phosphate (+3 percent), and a further decline for potash (-4.5 percent). Total fertilizer demand is anticipated to continue its rise in South Asia, and to rebound in North America and West Asia. Providing the recovery of world economic activity and positive changes in agricultural market fundamentals materialize, global fertilizer demand in 2010-11 could come back to positive growth rates (+4.9 percent). Demand for potash would strongly rebound (+13.5 percent), while demand for N and P would continue its recovery (+2.6 and +6.2 percent, respectively).

Aggregate consumption in 2008-09 is assessed as down 6.7 percent, to 156.4 million mt nutrients (for the 3 main nutrients NPK). Consumption is estimated to have contracted much more sharply for P and K fertilizers (-10.5 and -19.8 percent, respectively) than for N (-1.5 percent). The largest changes in volumes occurred in South Asia (+2.1 million mt) on the positive side, and in Western and Central Europe (-4.3 million mt), North America (-3.4 million mt), East Asia (-3 million mt), and Latin America (-2.4 million mt) on the negative side.

Despite application rates well below crop requirements, farmers in the U.S. are expected to harvest a bumper corn crop this year, and farmers in France have enjoyed record wheat yields. However, by doing so, IFA warns they are mining their soil nutrient reserves, which is not sustainable in the long-term. It said the return to sustainable fertilization practices will probably be triggered by more stable and predictable crop prices.

This year global nutrient production and sales dropped to very low levels due to the important inventory carry-overs in the worldwide distribution systems. For the second consecutive year, total world nutrient production in 2009 appeared to exceed sales and consumption, translating into a significant build-up of inventories at producers’ ends. This weakness in demand impacted global nutrient production and industry’s operating rates, but at a different intensity between the nutrients. In the nitrogen sector, ammonia production was rather stable while urea output expanded moderately. Phosphate acid production declined marginally in 2009, while that of phosphate rock dropped. The world potash market collapsed in 2009, as international import demand dropped to its lowest level of the past 30 years. Potash production plunged in 2009, due to a combination of depressed demand worldwide and large stock carry-overs in key importing countries.

International trade levels in 2009 reflected trends in nutrient uses and the shift in imports between raw materials and finished products. The main changes in international imports were the collapse of potash shipments to China, firm sales of DAP to India, and a significant decline in urea import demand into the United States. India featured predominantly in the international markets in 2009, as the world’s largest importer of urea, potash and DAP.

Trade prospects in 2010 for ammonia and potash are very positive. Cost pressure will persist on Ukrainian nitrogen exporters. Strong urea and phosphate import demand is expected in the U.S., South Asia, and Latin America. By the end of 2009, global nutrient consumption exceeded overall sales and should leave the supply pipeline rather empty. The situation in 2010 should see a major reversal trend compared with 2009, with a significant 4 percent growth in global demand and a strong 7 percent rebound on the total sales of the mainstream products. Urea, DAP, and potash trade demand in 2010 is projected to expand 5 percent, 5 percent, and 50 percent, respectively.

The “model fertilizer contract” that the Agricultural Retailers Association unveiled on Nov. 19 (GM Nov. 23, p. 13) was a hot topic at ARA’s 2009 Conference and Expo in Ponte Vedra, Fla. The contract was developed as a voluntary tool in response to “the extreme volatility that has occurred with fertilizer prices and supplies over the past several years,” ARA said, and was the focus of a panel discussion on Dec. 2 at the conference.

The panel consisted of Jacob Bylund with the law firm of Faegre & Benson LLP; Jim Shelton of Landmark Cooperative in Cottage Grove, Wisc.; and Steve Lucas of LD Commodities. The well-attended session focused on formal buyer/seller contractual agreements and the use of arbitration to settle disagreements. Panel moderator Dr. Dave Downey of Purdue University said the discussion was timely because of “frayed trust” between retailers and growers after years of conducting business with only a handshake. “There is a need to formalize the sale agreement in a legalized way,” he said.

Lucas, who has experience in arbitrating disputes in grain sales, said the recent pricing volatility in fertilizer has all but mandated the need for sales contracts at the retail level. Shelton agreed, saying his company was “moving to another layer of professionalism that didn’t exist in this industry before.” He said virtually 100 percent of Landmark’s fertilizer is now sold under contract, and the company executed 1,700 plant food contracts last year. “Selling $100,000 worth of fertilizer on just a handshake just doesn’t make sense,” he said.

Bylund cautioned the attendees to always do a proper counter-party risk assessment as a part of any sales contract. When properly executed, he said written fertilizer sales contracts eliminate the need to hire a lawyer 90 percent of the time. “You want to formalize the contract because you don’t want the law to dictate the terms of that contract,” he said.

Lucas said contract disputes are best resolved in arbitration. “Arbitration is cheaper than going to court, it’s faster than going to court, and you get a better result,” he said. Most of the cost associated with court cases involving contract disputes are spent on educating the judge and jury about the business. “With arbitration, you’re dealing with people who already know,” he said.

Shelton noted that Landmark’s terms allow growers to buy out of a contract if they choose, but the legal agreement protects both parties, particularly in times of volatility. He said Landmark would have been hit with an additional $4-$5 million in losses in 2009 if they hadn’t had contracts in place with their farmer customers.

All the panelists agreed that 2010 would be a good year for dealers to start using fertilizer sales contracts if they hadn’t before, especially after the wide price swings experienced in 2008 and 2009. Shelton noted that Landmark began using fertilizer sales contracts with growers in 2006-07 as the markets were going up. “If we would have tried to start the program in 2009, it wouldn’t have worked,” he said.

Lucas cautioned, however, that the contract is a “double-edged sword,” and that both sides are then expected to perform no matter what the price is. “Using contracts doesn’t take all the risk away, but it gives a structure to better manage it,” he said. “This won’t make a bad trade better, but it sure will give you a leg up. It’s a valuable tool to help you manage counter-party risk.”

Bylund agreed. “Having the contract with you is the 900 pound gorilla in the room when you go to meet with that counter party,” he said.

At the time of its release in November, ARA said its model contract could be used throughout all segments of the distribution chain, from manufacturers to distributors, retailers, and farmers. “A model fertilizer contract that can be utilized by industry on a voluntary basis should help companies better manage their risks and provide consistent terms and conditions when dealing with their suppliers or customers,” ARA said.

A PDF of the draft version of the ARA model contract can be viewed at http://greenmarkets.pf.com/ARA.pdf.

LoraxAg LLC, a small start-up company based in Marlborough, Mass., has big plans for a $1.6 billion plant to gasify low-grade coal to make fertilizer. According to LoraxAg President Mike Farina, the undertaking has already attracted a couple of local experienced technology executives, as well as Michael Sununu, the son of former New Hampshire Governor and White House Chief of Staff John Sununu.

Farina said the principals are already at work getting ready for the project engineering phase and laying the groundwork for construction, which is expected to start in two years in either Kentucky or Illinois. He declined to be more specific, but described this part of the project as “an open competition [to find] the best location for both the project and what is most valuable from an economic development aspect.” Farina said each meets the requirements of being both in the area that produces the kind of coal – high sulfur with low to medium BTU – that is required, and in the farm belt, which uses a lot of fertilizer.

Both urea and ammonia will be produced from the CO2 and the hydrogen from gasification, along with sulfuric acid for industrial users. Also, the two sites are both on navigable rivers – the Mississippi and Ohio – with busy ports already accustomed to handling both coal and fertilizer.

The plant will use coal gasification technology from Siemens AG, Farina said, adding that Siemens Financial Services Inc., the German giant’s investment arm, has been supportive. Once the initial financing is secured, he reported, LoraxAg will start building staff. They expect to have up to 18 employees on board shortly as the project moves into the project engineering phase. Ultimately, the plant will produce some of its own power as a result of the gasification process, which likewise is substantially more environmentally sustainable than conventional fertilizer manufacturing.