CF Industries Holdings Inc. is not just bullish on the 2011 U.S. corn crop it sees a positive trend continuing at least through 2013.
“We’re forecasting that 92 million acres of corn will be planted in the U.S. this spring, which would be only the second time we have exceeded 90 million acres,” CF Chairman, President, and CEO Stephen Wilson told analysts Feb. 18. “Even if a large corn crop is planted and harvested this year, U.S. farmers will need to continue to produce at high rates to replenish stocks to normal levels.
“As a result, we expect corn plantings to be sustained above 90 million acres in 2012 and 2013, as well,” added Wilson. “The impact of larger planted acreage is likely to be compounded by higher application rates. Even with fertilizer prices well above year-ago levels, fertilizer affordability to farmers, as measured by fertilizer costs as a percent of projected farm revenue, will be at the second most favorable level for farmers over the last 15 years. For 2010 and 2011, fertilizer costs as a percent of actual and projected revenue for corn are at about half the previous five-year average, giving farmers every incentive to fertilize optimally in 2011.
“In my 20 years in this industry, I have never seen a spring in which all the fundamental factors were as perfectly aligned for fertilizer producers as they are this year.”
For 2011, CF thinks corn fertilizer costs as a percent of projected revenue will be 14 percent, up from 2010’s 11 percent, but still much lower than a 10-year average of 19 percent. “So fertilizer is eminently affordable. In fact, it is highly desirable for the farmer to maximize his yield. And on top of that, we ended the last harvest year with about a 5 percent stocks-to-use ratio, that’s incredibly low. It’s certainly an uncomfortable level for U.S. agriculture and the food supply, so frankly, the stars and the planets are aligned here to support corn planting.”
Wilson said that if you look at the returns on an acre planted to corn versus one of soybeans, that corn comes out on top by $200 per acre. Citing that wide gap, he expects corn to remain in favor unless bean prices heat up and bid some corn acreage away. “But it would take a pretty big increase in soybean prices for that differential to be closed.”
Wilson says he believes that once fertilizer starts to move to the field this spring, it will become obvious that fertilizer stocking practices have been conservative. “We believe some fertilizers, notably UAN and phosphates, to be in tight supply.”
CF Vice President, Sales and Marketing Bert Frost added that he thinks there will be more inventory build-up this year compared to last year, when the goal was zero inventory at the end of the season. “I think because crop prices are so positive, the chain wholesale, retail, trader, end-user is accepting the prices relative to returns as Steve mentioned, and therefore is willing to probably hold more inventory at this time than they were last year.” Overall, Frost said the company is very confident about spring and fairly confident that the inventory levels in the U.S. are low on nitrogen, as well as low worldwide on nitrogen and phosphate.
Wilson said the company has been fielding a lot of inquiries about potential Fall 2011 deliveries. Others in the fertilizer industry have also commented to Green Markets about this trend, most notably for anhydrous ammonia.
Wilson was disappointed that the Woodward 500,000 st/y UAN expansion was not up and running in fourth quarter 2010 as originally expected (GM Nov. 15, 2010). However, the company was able to sell excess ammonia produced for that expansion into a very tight ammonia market. “We shipped 917,000 st of ammonia to our customers in the fourth quarter. That’s about 200,000 st more than we shipped on a pro forma-combined basis in either 2008 and 2009. The extended app