2008 Outlook

1 Economy

The International Monetary Fund forecasts continuing strong world economic growth averaging about 5 percent annually for the period 2008-2012. Led by China and India, the booming Asian economies should continue their robust growth, enabling their people to enjoy better diets and broaden their lifestyles with a wide range of products from industry. The slowing US economy is expected to grow by only 1.5 percent in 2008. Despite this, US net cash farm income is projected to exceed a record $95 billion.

2 Global Protein Consumption

People in developing countries currently consume less than half the protein of those in developed countries. Strong GDP growth in those countries in 2008 and beyond is expected to continue to provide higher incomes, allowing people there to increase the protein content of their diets. Much of this protein is expected to be supplied by domestic meat animals, which consume significant amounts of crops such as corn. Production of these crops is expected to continue lagging consumption.

3 Biofuels

Oil prices projected to be substantially above $50 per barrel for the rest of the decade are expected to maintain the momentum of global biofuel programs. The US Energy Bill signed in late 2007 committed the country to use 9 billion gallons of ethanol in 2008, 15 billion gallons of corn-based ethanol by 2015 and 36 billion gallons of renewable fuels by 2022. The 2015 and 2022 targets are more than double and more than five times the 2007 level, respectively. Biofuels are expected to be a necessary part of the energy equation for years to come.

Brazil's farmers are expected to plant more sugar cane during the next few years to meet anticipated growth in demand for ethanol for both domestic and export markets. High palm oil prices should raise oil palm plantings in Malaysia and Indonesia to supply longer-term demand growth, while increased food use of this product may slow short-term growth in production of export biodiesel for Europe.

4 Crop Prices

With global inventories for wheat and coarse grains projected to fall to record lows by the end of the 2007/08 crop year, prices for these crops are expected to remain strong in 2008 and beyond. Competition for planted acreage is projected to support high prices for other crops such as soybeans, while a robust pricing environment for key global crops such as oil palm, coffee, bananas, cocoa and rubber should continue.

5 N, P and K

More fertilizer is expected to be applied around the world to meet the growing demand for food, animal feed, fiber and fuel. With strong crop prices motivating a push for higher yields, global potash demand is forecast to grow by 5 percent, phosphoric acid by 5 percent and nitrogen by 2.5 percent in 2008.

6 Potash

With projections for ongoing 3-4 percent average growth in annual demand, world potash supply is expected to remain tight for several years. Given the five- to seven-year lead time for greenfield projects – and no announcements to date – significant new production is not anticipated in that period. Some producers are expected to complete small expansions of existing operations in the next five years. PotashCorp, the largest producer, has announced plans to bring on approximately 5 million tonnes of operational capacity by the end of 2012. Even with additional incremental capacity, the market is expected to remain reasonably tight. The very positive agriculture and potash market conditions should encourage higher potash prices, but perhaps at more moderate growth rates than the unprecedented upward movement of the last six months.

7 Natural Gas

The futures market reflects 2008-2010 US natural gas prices between $7.50 and $9.50/MMBtu and European natural gas prices between $9.00 and $11.00/MMBtu. The cost of Russian gas delivered to the EU is expected to continue to rise, and to Ukraine to average $5.75 in 2008 and exceed $6.00 to the end of the decade. Development of new capacity now costs more everywhere. The rising demand for gas to produce LNG and industrial products is expected to continue to reduce the price gap between lower-cost and higher-cost gas regions. This, together with high shipping costs, may discourage countries with surplus low-cost gas from monetizing it by producing nitrogen products for export.

8 Nitrogen

Rising global need for crops is expected to increase nitrogen fertilizer consumption by 2.5 percent in 2008. Continuing high import demand, lower marginal export supply from former Soviet Union countries and less US and EU domestic supply may counter the new urea and ammonia export capacity expected in 2008, potentially putting moderate downward pressure on markets. Current project plans together with anticipated market growth are expected to maintain reasonable market strength over the next few years.

9 Phosphates

Relatively strong phosphate markets are expected through the end of the decade due to growing demand, recent US shutdowns and few new projects coming on stream in the near future. Rising costs of rock and sulfur are expected to put pressure on phosphate prices in 2008 and underscore the advantage of owning integrated, high-quality rock reserves. However, sulfur costs may in the short term rise significantly faster than some phosphate prices, given the nature of the business with certain customers for certain products.

Substantial new capacity is expected in Saudi Arabia in 2011 or 2012. This could potentially soften markets at that time; however, other global producers reliant on imported production inputs, particularly phosphate rock, may be forced to curtail production, offsetting new capacity. India's DAP production is expected to continue substantially below capacity due to delays in government subsidy payouts and inefficient operations. US producers will likely continue to focus on domestic markets and convenient offshore markets such as Latin America.