Nearly 150 attendees were on hand in Arlington, Va., for the 2007 Fertilizer Outlook and Technology Conference Nov. 6-8, sponsored by The Fertilizer Institute and The Fertilizer Industry Round Table. A range of speakers offered plenty of optimism for the industry, fueled by growing biofuels demand and expected increases in corn and wheat acreage in 2007. The optimism was tempered, however, by transportation concerns and regulatory uncertainties involving the changing political landscape after the midterm elections.

In the keynote address, USDA Economist Keith Collins said that biofuels demand will continued to grow globally, which will pull up crop prices and incomes. Following 2005, when a smaller corn crop resulted in carry-over stocks dropping by 50 percent, Collins said corn will be the big story in agriculture over the next few years due to the demands of ethanol production.

Bob Dinneen of the Renewable Fuels Association said the rate of growth for the ethanol industry in the U.S. “has simply been phenomenal,” with 106 plants currently in operation and 44 in construction. “This is not going to be forever a corn-derived fuel industry. Clearly other feed stocks are necessary,” he said. “While ethanol is not a panacea, it most certainly is part of the answer.”

Judith Taylor of ICIS outlined “the green push” of the Energy Policy Act of 2005, referring to bio-diesel as “more of a frontier market” than ethanol, which already has a foothold in the commodity market. Taylor said America is well capitalized to take advantage of the biofuels push, while biofuels and other bio-based products “offer rural America its largest new opportunity in history.” As to the food vs. fuel debate over corn demand for ethanol, Taylor said the market “will find its balance by utilizing novel ways to make ethanol,” including enzymatic activity to produce cellulosic ethanol.

John Urbanchuk of LECG LLG discussed the various ethanol production processes, and also quantified the growing ethanol demand; 2006 will produce 5.1 billion barrels of ethanol, he said, while corn used for ethanol has grown from 75 million bushels in 1981 to 1.7 billion bushels by 2005/06. As for 2007, Urbanchuk said 2.1 billion bushels of corn will go to ethanol production, with a 4 billion bushel ethanol demand predicted by 2015. Ethanol accounted for 14 percent of corn uses in the U.S. last year, he said. Urbanchuk also outlined the costs of producing ethanol, concluding that, even at today’s high corn prices, “ethanol is profitable.”

Not all the news was rosy for the industry. Joe Prochaska of Prochaska & Company consultants outlined the changing retail landscape, noting that there were 25 percent fewer ag retailers in 2006 than there were in 2002. Retailers have been impacted by energy prices, a shift from crop protection to genetics and seed strategies, and continued consolidation, with national distributors extending their retail market coverage and focusing more on specialty markets. Ag retailer trends include expansion through acquisitions, fewer but larger independent retailers, the growth of professional management, and the strong presence of local cooperatives.

“Retailers are gaining a comparative marketing advantage with the proliferation of products and technologies that have to be sorted out for the grower,” he said, noting a strong alliance between genetics and crop nutrition in the future. “Retailers are less differentiated by structure going forward than by the services provided.”

Tom Williamson of Transportation Consultants Co. presented a sobering look at the transportation crisis facing the fertilizer industry. Railroads have seen record demand for their services and are instituting “hyper rate increases,” as well as increased charges for all accessorial services. Added to this are the shipping demands of expanded ethanol production, coupled with consolidation that has seen the railroad industry go from 31 Class One railroads in 1985 to just seven today. As a result, railroads are taking large rate increases, especially for single-car shipments; are building the costs of their own inefficiencies into the rate system; and are using technology to determine the cost and profitability of all shipments. Railroads must increase capacity, Williamson said.

Truck, barge, and ocean freight has also increased dramatically due to high demand. Truck freight has been impacted by high diesel, tax, and insurance costs, and highway delays have increased 180 percent in the last 15 years, he said. World demand, powered by China, has pushed ocean bulk cargo rates up by over 100 percent in the past 20 months, he added, and river infrastructure in the U.S. is in need of extensive repairs.

Risk management options for shippers include hedging rail transportation by utilizing pool cars, hedging fuel surcharges via futures markets, and expanding tracks and loading/unloading equipment. “Efficient shippers and receivers will share the benefits by reduced rates,” Williamson said.

Transportation was also one of the “high profile issues” outlined by The Fertilizer Institute’s Pam Guffain, along with chemical facility security, ammonium nitrate sales tracking, future Farm Bill programs, and efforts to combat methamphetamine production. A continuing concern for the fertilizer industry is the effort by railroads to be relieved of their common carrier obligations to transport toxic-by-inhalation products such as anhydrous ammonia and chlorine, Guffain said.

Tip O’Neill of International Raw Materials noted his company’s transformation from an exporter to an importer. “We’ve all had to change on a dime,” he said, referring to the shutdown of 50 percent of U.S. nitrogen production in the last five years. “We are set up as an export nation, but now we’ve swung to an import nation,” he said. The challenges that result include limited import infrastructure, limited barge capacity, and an indifferent rail system. “Where is the fertilizer coming from for this big 2007 corn crop?” he asked.

O’Neill said world markets are now driving North American fertilizer prices, and emerging nations are dominating new production capacity. As a result, supply lines are dramatically longer and prices are much more volatile. “The retail dealer is just apoplectic about price volatility,” he said. He cautioned, however, that “just-in-time delivery is a mirage,” with supply lines now 90-120 days out.

O’Neill concluded by encouraging attendees to embrace and anticipate change. “Those that embrace change will survive,” he said. “History tells us that most of the companies that will be successful in our industry tomorrow are not around today.”

A wide range of other issues and technologies were covered at the conference. Kish Shah of Shah-4SHE outlined the steps the EU has taken to secure ammonium nitrate. “Activities concerning AN-based fertilizers are highly regulated in the EU to ensure safety and security,” he said, noting the product’s excellent safety record since the 1950s and its efficiency as a nitrogen fertilizer. “We must safeguard plants and products throughout the distribution chain in an effective and convincing manner,” he said.

Virenda Singh of Moodys Economy.com highlighted the economic and agricultural outlook for China and India, noting that both countries’ economies are “firing on all cylinders,” although a decline in GDP for both countries is expected after 2006. Singh, along with Rob Rennie of Spur Ventures Inc., outlined several uncertainties going forward, including the loss of arable land, a growing rural-urban divide in China, and rising social tensions, centered primarily around property rights. “China is neither a democracy nor a free-market economy,” Rennie said. “It is still a planned economy.” India’s largest social and political risks include terrorism and a weak central government, Singh said.

Claude Corkadel of Rentech Inc. explained the Fischer-Tropsch coal gasification process, highlighting the Rentech Energy Midwest ammonia plant at E. Dubuque, Ill. The plant will be online with its new gasification system by the end of 2009, while other gasification projects, including one in Natchez, Miss., and others in Montana and Wyoming, are being studied. Coal-to-ammonia fertilizer “provides a high margin, high value alternative to natural gas,” he said.

Other presentations included Terry Tindall of the J.R. Simplot Co. on the company’s Avail coating technology; Paul Fixen of the Potash and Phosphate Institute on phosphate use efficiency; Dennis Baron of Magic Green Corp. on micronutrients and Nano Technology; Greg Evanylo, a Virginia Tech professor and extension specialist, on the heavy metals content added to soils by animal manure and other sources; Gary Burau of Waconia Manufacturing Inc. on the role of mega distribution centers in the supply chain; Garry Wagner on AAPFCO activities; and IFA Director General Luc M. Maene on fertilizer’s role in meeting global nutrition challenges.

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.”