Market Views
WORLD'S APPETITE SQUEEZES FERTILIZER SUPPLY
AL MULHALL
PotashCorp Director, Market Research
It's classic supply and demand. The world demands more food, so the supply of agricultural products – and fertilizer – will continue to feel the strain as farmers in the US and the rest of the world plant as much as they can, striving for high crop yields.
A growing global population with a rising per capita income is demanding more and better food, including more meat. The direct use of crops for food and their indirect use in animal feed to increase meat production is providing the lion's share of crop consumption. This, together with increasing crop demand for fiber and biofuels, has led to higher prices for crop commodities.
Prices for wheat, corn and soybeans are well above the average farm gate price of the past five years. For a US corn farmer, USDA's 2007/08 projected average farm-gate price has increased by about $2.00 per bushel over the past two years, which roughly translates into a $300-per-acre boost in farm returns on a yield of 150 bushels/acre. By comparison, a $100-per-short-ton increase in North American potash prices adds $0.03 per bushel, or $4.50 per acre, to the cost of producing corn.
The chart above shows how a well-managed fertilization program may increase a farmer's return on investment.
Source: IPNI
If you follow the money, the reason for increasing fertilizer use is plain. Fertilizer can achieve a return of three-to-one or more on investment. An International Plant Nutrition Institute survey shows that a widerange of global crops achieves a net return of over $3 for every $1 invested in a fertilization program that included potash, nitrogen and phosphate. For example, a typical US corn farmer generates approximately $3.50 for every dollar spent on balanced crop nutrition.
Farmers around the world are responding to strong commodity prices by applying more fertilizer to increase crop yields. In many parts of the developing world, fertilizer applications are substantially below ideal levels – particularly for potash – and demand is increasing dramatically, stretching the ability of fertilizer producers around the world to respond.
PotashCorp has announced a number of potash projects to tackle the growing demand, including our 1.5-million-tonne debottleneck at Lanigan, 360,000-tonne debottleneck at Patience Lake, 1.2-million-tonne debottleneck/expansion at Cory, 1.2-million-tonne expansion at New Brunswick and 2-million-tonne expansion at Rocanville. We are also working on rail and loadout expansions at Allan and Rocanville.
While fertilizer supply in the coming years is expected to remain tight, in 2007, PotashCorp announced $4.5 billion in projects, which will increase potash production to help meet the world's growing need for this essential nutrient.
|
