The bulls were running in San Antonio July 12-16 for the 2008 Southwestern Fertilizer Conference – and there were a lot of bulls. Conference organizer Pat Miller said some 1,156 industry representatives were on hand for the annual event, with spouses bringing the grand total to a record 1,310. This year’s attendance outnumbered last year’s previous record by 120, and Miller noted as well that a record 120 suites were reserved for the conference.
Most attendees reported a heavy meeting schedule throughout the five-day event, and pricing for some nitrogen products was in a sprint as the conference progressed (see Market Watch). The bullish tone prompted Tuesday’s General Session emcee to joke about a hypothetical door-prize drawing for five tons of potash.
PotashCorp CEO Bill Doyle kicked off the General Session with a much-anticipated discussion of world fertilizer supply and demand. Doyle spoke to a capacity crowd at the Marriott Rivercenter Hotel ballroom, and extra chairs had to be set up to accommodate the overflow.
Doyle talked of the recent run-up in prices – for food, crops, and fertilizer – as a result of global economic growth that has sparked food expenditures and spurred a shift to high protein diets. Ethanol production has not been the major force behind the rise in food prices, he said, noting that crop prices are now demand-driven and that the grain stocks-to-use ratio, at 15.5 percent, is at its lowest point on record.
Doyle referred often to the impact of China and India on supply/demand variables. Doyle said fertilizer use is still a developing practice in many countries, and China will have to increase nutrient use by 25 percent for nitrogen, 40 percent for phosphates, and 100 percent for potash to address its nutrient imbalance. India, by comparison, needs to increase nutrient use by 75 percent for nitrogen, 100 percent for phosphates, and 250 percent for potash.
Doyle said U.S. corn production is forecast to reach 93 million acres in 2009 and 96 million acres by 2012, with projected crop prices over the next several years in the range of $6-$7 per bushel for corn, $15-$16 per bushel for soybeans, and $8-$10 per bushel for wheat.
While noting that the global urea supply balance is stable, Doyle said escalating natural gas prices are raising the nitrogen floor price globally. India import growth is driving the global urea trade, he said, while China has the potential to add considerable urea capacity.
Doyle said demand is outpacing supply for phosphate rock, and the current strength in phosphate pricing is likely to continue next year. The majority of new DAP/MAP production through 2012 will take place in China, he noted, but China will also use most of it. In addition, China’s export tax is limiting world DAP/MAP exports.
As for potash, Doyle said global agriculture is recovering from years of under-application. Increasing rates in China, India, and Brazil to levels that represent a balanced nutrient program would raise global potash consumption by 45 percent, he said. Noting the time and expense required for greenfield potash projects, Doyle said tight global potash supplies will continue in the foreseeable future, and “will test the industry’s capacity” for the next several years. He said he anticipates a very strong potash market for the next five years.
Doyle responded to questions about the rapid hike in potash prices by noting higher production costs, and by referring again to the estimated $4-$5 billion in costs and five-year timeframe required for a greenfield potash facility. Regarding the many new players currently testing the potash waters, Doyle likened the atmosphere to the mid-19th Century Gold Rush, but cautioned that “in the Gold Rush, there was lots of fool’s gold.” Doyle noted Canada’s rich reserves in potash, but said the difficulty is having the ability to “go get it.”
“The fertilizer industry has been suffering for many, many years, but now we are in a powerful demand cycle,” Doyle said. Asked if strong exports were robbing the North American market of too much potash, Doyle assured conference attendees that North America is PotashCorp’s “most important market,” and that new capacity is coming online to benefit the domestic market. “We take that responsibility very seriously,” he said.
With listeners on hand from all stages of the distribution chain, not all in the audience were receptive to Doyle’s rationale for higher prices, nor were they optimistic about assurances of future domestic supplies. Some responded to his comments about rising costs by shaking their heads, and others sat with arms folded staring at the floor. One leaned over to a fellow attendee and said, “At least no one threw any tomatoes at him.”
Rapidly rising production costs and the surging demand and prices for crops was also the theme of presentations by Mark Thompson of John Deere Credit and Bruce Baccus of Rabo AgriFinance. Like Doyle, Thompson said biofuels are not behind the price surge in grains. He said “unprecedented cost escalation” will continue, but the expense ratio is still within the normal range due to much higher crop prices. As a result, the ag credit market’s reaction to increased borrowing needs has been “cautious but steady,” he said.
The Fertilizer Institute President Ford West gave a Capitol Hill update, offering a brief side-by-side comparison between presidential hopefuls John McCain and Barack Obama on issues such as energy policy, agriculture policy, transportation, chemical security, and the environment. West’s typically candid observations were greeted warmly by the audience; on the topic of chemical security, he said the industry “is probably screwed no matter who is president.” He also addressed the controversy over natural gas exploration in currently off-limits areas, saying “we have oil and gas in the United States, and we need to go get it.” West cautioned that the Lieberman-Warner climate change bill, which was rejected by the Senate in June, would have added $6-$12 billion to total crop production costs, and would have led to a “significant decline in farm income.”
West also highlighted the industry’s efforts to improve nutrient use efficiency. “We are doing it, but we need to do a better job to face the challenges that we have,” he said. “The days of broadcast urea anywhere should be over.”
