1 World Economy Continued to ClimbLed by developing countries – China with 11.4 percent growth, India 8.9 percent, Brazil 4.4 percent – the global economy extended the strong performance begun in 2004 into the most robust four-year period in more than three decades. The disruptions in the US credit markets contributed to US growth slowing to 2.2 percent but agriculture was relatively unaffected. Strong offshore economies provided people with the means to eat better and, buoyed primarily by the increased global demand for food, supplemented by rising biofuels production, crop prices strengthened. |
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2 Global Grain Consumption Exceeded ProductionWorld grain production has failed to keep up with rising demand in seven of the past eight crop years beginning with 1999/00. The current crop year, 2007/08, is projected to make it eight out of nine years. This repeated shortfall indicates that current practices of the world's farmers are unable to meet the needs of the growing global population. |
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3 Thirst for Oil Pushed Up PricesStrong economic growth in developing countries and increasing world population intensified the thirst for oil as fuel and industrial feedstock. The weaker US dollar, rising geopolitical tensions and the cost of pumping oil from ever more challenging deposits pushed the price to nearly $100/barrel late in 2007, an all-time high even on an inflation-adjusted basis. |
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4 Biofuels Production JumpedThe rising cost of oil and increased efforts by many countries to reduce reliance on foreign supply propelled expansion of the biofuels industry, with developmental programs in more than 35 countries. World ethanol production rose by 30 percent and biodiesel production by more than 50 percent in 2007. Brazil produced 5 billion gallons of ethanol. US production of 6.5 billion gallons outpaced the oil industry's installation of blending capacity, and prices briefly dropped to 50-60 cents per gallon below the gasoline price. Lower profit margins discouraged investment in new ethanol plants, while the substantial price differential, together with a 51-cent-per-gallon blending subsidy, attracted private investment, enabling blending capacity to catch up. A new Energy Bill was enacted that mandated large increases in US use of renewable fuels in future years. |
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5 Major Crop Inventories Continued to ShrinkWith less-than-optimal fertilizer application in many developing countries and adverse weather in several regions, world grain production is expected to be below crop-year demand. When the current crop year ends, global inventories are expected to hold only enough wheat and coarse grains for 1.7 months – the lowest level ever recorded by USDA. A simultaneous decline in corn, wheat and rice stocks drove up prices enough to encourage farmers to grow more. Competition among these crops for available acres raised prices for crops such as soybeans that are expected to have less acreage. |
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6 Demand for N, P and K AcceleratedStronger fertilizer demand reflected rising food requirements, dietary demand for higher protein content and declining crop inventories. World potash sales rose by 15 percent and sales of both nitrogen and phosphate by 4 percent, combining with tight supply to provide strong markets for each. |
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7 US Farm Prices Set New RecordsUS prices for wheat, corn and soybeans set records, buoyed by strong food demand, rising biofuel requirements for corn and declining global inventories. Farmgate prices for the 2007/08 crop year are projected to average $6.65 per bushel for wheat, $10.40 for soybeans and $4.00 for corn. |
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8 Potash in Demand WorldwidePotash imports rebounded in China and India to meet the heavy crop uptake of this nutrient and to begin replenishing the potash pipelines depleted during 2006 price negotiations. Southeast Asia and Brazil, motivated by strengthening crop prices, began the lengthy process of restoring depleted soil nutrient levels. The US imported heavily to maximize yields from corn and other crops selling at or near record prices. The strong demand led to higher potash prices, which were partially offset in the international market by rising ocean freight rates. The effect of the weakening US dollar on foreign exchange benefited potash importers. |
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9 The Global Phosphate Market TightenedWhile phosphoric acid capacity elsewhere has fallen, China is now producing more than it can consume, permitting export of around 4 million tonnes of DAP and MAP in 2007. This was absorbed as global demand rose by 2.8 million tonnes, close to 6 percent, and US exports fell by 1.6 million tonnes. As a result, the world phosphoric acid operating rate reached 86 percent, and prices rose dramatically. The benchmark Tampa DAP price jumped by 130 percent over the year while India's contract price for phosphoric acid rose from $461 per tonne P2O5 to $566. Morocco's OCP raised its phosphate rock price from $45 per tonne FOB Casablanca to around $190 per tonne on new contracts at the end of 2007. Sharply higher international freight rates, a 600 percent increase in sulfur prices in key markets and a jump of close to 20 percent in US demand for DAP/MAP also affected prices. |
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10 Strong Demand for Feed and Industrial PhosphatesThe market for feed and industrial phosphates grew by 4 percent to meet demand of the buoyant economies in the developing world. Prices for domestic and offshore feed, as well as industrial products, rose. |
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11 Higher Natural Gas Prices, Competition StiffenedPetrochemical facilities and higher global LNG trade competed with new nitrogen projects for low-cost natural gas in 2007. Ukraine producers had to pay 46 percent more for Russian gas, reducing their competitiveness. Their ammonia exports fell by about 20 percent, contributing to the tight global nitrogen supply, which maintained strong markets in North America. |
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12 Strong US, Indian Imports Tightened Urea Supply/DemandFast-rising demand for urea in India and the US to boost crop production outshone more moderate growth in import demand elsewhere. India imported about 50 percent more than 2006 levels, and with US imports made up close to 85 percent of the 14 percent growth in urea trade. |
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13 High Capital Costs Limited Growth in Fertilizer CapacityMany proposed fertilizer projects have been deferred or cancelled due to high capital costs and longer construction schedules. The strength of developing world economies and the many infrastructure projects tightened supplies of raw materials, construction materials and skilled labor in 2007. In one year, the spot price for iron ore rose by 71 percent in Brazil and 145 percent in India. Demand for ocean transport took the Baltic Dry Index for solid shipments to a record high before softening in the last quarter of the year. The estimated cost for a 2-million-tonne greenfield potash project in Saskatchewan rose significantly. |
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