2009 Outlook

The World Needs More Food from Every Acre

The duration and depth of the global economic crisis are impossible to predict, with governments, industries and individuals trying to understand and react. However, this situation does not alter the fundamentals that drive long-term growth in fertilizer demand. With world population at 6.8 billion and growing, the ongoing need for more food production is equally urgent.

1. Economy The International Monetary Fund projects the ongoing impact of the global economic crisis will hold world growth to 0.5 percent in 2009, rising thereafter. Asian economies are expected to continue their strong growth, although at lower levels than recently. This should enable their people to continue to enjoy better diets and add modern products to their lifestyles.	download all graphs enlarge
download all graphs enlarge 2. Agriculture Although agriculture is affected by the global economic crisis, the food challenge posed by rising population and demand for meat continues. Farmers are under pressure to increase planted acreage and improve yields, making proper fertilization imperative. However, they are being extremely cautious in their seeding plans and fertilizer purchases, reflecting what we believe is largely a psychological barrier at a time when agriculture economics are favorable. For example, because key buying decisions were late, we expect below-normal US fertilizer use in the 2008/09 fertilizer year relative to seeded acreage. Farmers in major growing regions in Europe, the FSU and Asia are equally cautious, but we expect countries with governments directly involved in agriculture production, such as China and India, will be more focused on growing the needed food. In Brazil, the recent weakening of its currency, the real, and the rise in soybean prices are positive for agricultural exports but cannot compensate for missed fertilizer applications.
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3. Crop Prices With widespread reduced fertilizer application in fall 2008 and fewer planted acres in some countries, 2009 crop supplies are expected to be tight. Historically low stocks-to-use ratios are projected. These factors should positively affect crop prices. Good economics for corn and other crops should encourage farmers to purchase needed inputs for future crops.	download all graphs enlarge
download all graphs enlarge 4. Potash While we expect slow potash markets early in 2009, the pace should intensify in the second quarter. Expected demand growth and significant production cuts should tighten markets, strengthening second-half 2009 as well as 2010. North American farmers deferred fertilizer purchases in the fall when at least 40 percent of potash applications traditionally occur, but we expect above-normal spring application. China did not enter the potash market until late in 2008, so soil nutrients used by its record crop will need to be replaced. Its agronomic needs are high, and we expect it will import at least 25 percent more potash than in 2008. Food requirements should continue to drive India’s robust demand, while we anticipate that Brazil will recover from recent credit issues with potash imports near 2008 levels. Southeast Asian countries enjoying strong palm oil prices are expected to maintain stable potash demand in 2009. Long-term potash fundamentals remain strong.
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5. Phosphate Despite short-term weakness in solid phosphate fertilizers due to high global inventories, prices for phosphate rock are historically strong. We expect that capacity curtailments worldwide and strong underlying rock prices will strengthen solid fertilizer markets once demand returns. Prices for sulfur and ammonia inputs are projected to be considerably below 2008 levels, but strong rock prices are expected to continue to pressure non-integrated producers.
6. Natural Gas The futures market projects medium-term US natural gas prices will remain relatively strong. With higher gas prices, Western European nitrogen producers are expected to continue as the high-cost global suppliers. Nitrogen product from Ukraine, where gas prices have more than tripled, is not expected to compete in the US. We expect Russian producers to lose their substantial discount on gas prices within five years, moving to global parity.
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7. Nitrogen World nitrogen demand is expected to be soft in first-half 2009 due to curtailed production of solid phosphate fertilizer (made with ammonia), farmers’ deferral of fertilizer purchases and the effect of the economic crisis on industrial demand. However, with substantial capacity offline and questions about natural gas reliability in some key producing regions, conditions could improve quickly, especially as crop prices have rebounded. Meeting pent-up demand may lead to logistical problems, product shortages and higher prices – particularly as phosphate and nitrogen fertilizers are likely to be needed at nearly the same time.
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8. N, P and K Growth in world demand for nutrients is expected to be moderately lower in the fertilizer year 2008/09 than the average over the previous five years, as the financial crisis may lead growers in certain markets to take a cautious approach. Thereafter, consultants project the five-year growth rates for potash, phosphate and nitrogen to be 3-4 percent, 2.5-3 percent and 2-2.5 percent, respectively.	download all graphs enlarge