Major U.S. fertilizer industry CEOs last week took aim at recent USDA projections that corn yields in the U.S. would hit a record 166 bushels per acre (GM May 14, p. 13) and significantly beef up corn stocks. After the USDA assessment, both corn prices and fertilizer industry stock prices dropped.
Many of the CEOs were given a unique opportunity to vent at the BMO Capital Markets Farm to Market Conference May 15. CVR Partners LP President and CEO Byron Kelley said at most bushels per acre could hit 160 at best, but that 166 was a stretch. He said at 96 million acres you are pulling in the less productive acres. “The acreage is not going to give you the yield of your best farm lands, and I think that USDA failed to put that into their analysis.” He said 166 bushels per acre has not been done. “If you look at the average over the last five years, we produced about 153 bushels per acre. Last year, we produced 147 bushels per acre, the year before that 153, and now we’re going to move to 166 using a lot of unfertile crop lands.”
As for corn prices, he doesn’t believe they will go below $5.00 per bushel.
PotashCorp President and CEO Bill Doyle reminded analysts that even at $4.00-$5.00 corn farmers will receive a very sufficient return. Doyle said he believes there will be an early harvest, and added that the industry is still in the middle of May and weather can still play a major role. He said there are some dry pockets in some growing areas that are going to need very substantial rain in June. “If you look at just two years ago, 2010, USDA forecast 164 bushel yield for the corn crop; it came in at 152, which again, was impacted by weather.”
“And personally,” added Doyle, “I think that USDA has this setup for perfection at the moment, and it’s possible if you have perfect weather, but we know that oftentimes that isn’t the case.”
Agrium Inc. President and CEO Michael Wilson told analysts, “The ag market is great. Don’t be afraid of $5.00 corn.” Wilson said the historic average margin for corn is $3.50, and that is using today’s corn and input pricing. “We think when you start dropping below that $3.50 range, the farmer will start cutting back. It will have some impact. They can mine the soil for P&K, if they choose. So you might see a little bit of that. You won’t see the nitrogen cut off.”
And as a retailer that buys some 8 million mt of fertilizer each year, Wilson said retailers will have to stock for the second half of the year. “Well, you have to restock your shelves in the back half of the year. The farmer wakes up in the morning and phones you and says, bring it over. They don’t phone you a month early; they don’t phone you three weeks early.”
Wilson noted, however, that retailers and farmers were afraid to take product too early this spring. “The reason nitrogen popped up to $700/mt is no one had any inventory. They were all afraid to take it.” He said due to Agrium’s distribution ability, this played to its strength.
“There are varying perspectives on yields and potential corn prices, but corn futures are still over $5.00 a bushel, and that’s the high end of what we have seen as historic levels,” added CF Industries Holdings Inc. CFO and Senior Vice President Dennis Kelleher. “We continue to expect farmers to plant over 90 million acres of corn for the next several years, with that continuing to drive strong demand for crop nutrients.”