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Demand Drivers
Ethanol not the Only Cause of Tightened nitrogen Market
This year, the ethanol boom and the North American corn crop are getting all the headlines, but buyers of industrial nitrogen should know that other long- and short-term factors are expected to drive tightened nitrogen markets.
It's Food, Not Just Fuel
The overall growing demand for grains is a global effect that threatens to continue putting high demand on nitrogen products beyond the impact of ethanol in the United States.
"This year, US corn plantings increased substantially, but the real driver in this is the global food story," said Mike Sylvester, PotashCorp's Senior Director of Industrial Sales. "If you look at the gap between the amount of grain produced worldwide and the amount consumed this past decade, you can see the real evidence of how food demand is affecting everything, including the nitrogen market. In seven of the past eight years, demand has exceeded production – forcing the draw-down of global grain inventories to the lowest levels on record. And this phenomenon was occurring long before the emergence of biofuels this past year."
The major factors impacting this food demand are the rising world population and the shifting diets of many growing nations. The strong global economy is putting more money into the pockets of people in developing countries – those people whose diet choices were previously limited by low incomes. Now they can make the move from starch-based to protein-based diets, increasing their intake of animal proteins.
As this chart shows, grain consumption has outstripped production in seven of the last eight years and another gap is forecast for 2007/08. This trend is one example of how food demand worldwide will affect many markets.
Source: USDA July 2007
Animals consume a lot of grains to produce high-protein meat, and the increased demand for meat has lowered world grain inventories to record low levels. The current wheat and coarse grains stocks-to-use ratio is at 14.6%, which would feed the world for just 1.8 months. This requires that farmers receive higher prices to encourage them to produce more.
Globally, the demand for biofuels is a secondary driver, raising demand for crops such as corn, sugar cane and oil palm. PotashCorp estimates that the bulk of the growth to the end of this decade will relate to food demand, while biofuels will provide a smaller but still important share.
Ethanol Effect
In North America, corn took a lot of nitrogen out of the market during the 2007 growing season.
Consider that 40-45 percent of US fertilizer consumption is attributable to use on corn. The recent corn boom resulted in a heavy demand for nitrogen, phosphate and potash.
An estimated 93.6 million acres of corn were planted in the United States in 2007; the USDA's October crop report forecast corn production of 13.3 billion bushels – 26 percent higher than in 2006. Yields are estimated to be higher, at an average 154.7 bushels per acre – 5.6 bushels more than in 2006. This would be the largest harvest on record and the second-highest yield on record, behind the 160.4-bushel yield in 2004, according to the USDA.
Still to Come
In the near future, consumers of nitrogen products, including industrial users, are expected to also face additional sources of demand for ammonia, nitrate and urea products.
For example, nitrogen products are being looked at as fuel additives for new biofuels under development. And, come 2009, the US Environmental Protection Agency's Clean Air Interstate Rule will tighten emissions standards, likely requiring more NOx-reducing products for power-generation plants and other industrial users, according to Sylvester.
During this extended period of an anticipated tightened nitrogen market, PotashCorp remains dedicated to keeping its longtime industrial customers well supplied.
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