By ANN HINCH
Assistant Editor

ST. LOUIS, Mo. — Of the three fertilizers farmers know best, demand for potash (K) worldwide should continue to outstrip demand for nitrogen (N) and just about equal phosphorus (P) for the next year, according Dr. Harry Vroomen, vice president of Economic Services for Washington, D.C.-based The Fertilizer Institute (TFI).

In the United States, Vroomen projects demand for N will increase 4-6 percent for 2009-11 (he does not yet have industry data for 2009 and 2010); for P, 8-10 percent; and for K, 10-12. He figures K application will go up as farmers make up for not using much the past couple of years.
Worldwide, he expects increases to be 6 percent for N, 18 for P and 17 for K. Potash demand will be particularly high in China and India, he explained.
“If you haven’t locked (fertilizer orders) in, do it as soon as possible,” Vroomen advised U.S. farmers still planning for spring.

He spoke during an online event for National Corn Growers Assoc. members Dec. 18, as part of the organization’s monitoring of fertilizer supply and demand.
Only 12 countries can economically extract K, according to TFI. Only 10 countries export it. Brazil and China use all of their supply. (China is also the world’s largest importer of it). Although there is some K in the United States, 85 percent of the U.S. supply is imported – two-thirds of the world’s exports come from Canada, Russia and Belarus.

U.S. supplies of K hit a record low in August 2008; as farmers recall, prices for all fertilizers peaked not long after that, which was also the same year corn and soybean prices saw record highs. Though corn came off its June 2008 high relatively quickly, fertilizer was slow to follow.

“They don’t move together, one for one, but they do move together,” Vroomen noted, showing a chart tracking multi-year trends in prices for both.
In 2009, he estimated there was a 16-17 percent drop in nutrient use in the United States because of the higher cost of application. Other countries also felt the pinch; in Argentina, N use was down 34 percent in 2008-09, and in Brazil, 9 percent. Phosphorus use fell similarly, as did K use in Argentina; even China used 26 percent less K during that time.

A chief reason use of all three increased in India during the same time – the country upped its K use alone by 26 percent – Vroomen said, is because its federal government subsidizes the cost of purchasing nutrients for farmers.
By August 2009, he said prices for N, P and K had dropped dramatically in the United States. Domestic production of all three also fell, to the point where there are only two remaining K producers.

Around the world, N, P and K are priced in the U.S. dollar, and its lower value in 2008 combined with exchange rates is part of why those prices went up, he said. Increased demand for raw materials to manufacture the nutrients and higher shipping rates also contributed.

For many years prior to 2001, fertilizer demand only increased by about 1 percent annually, Vroomen explained. Then from 2001-08, demand rose 23 percent worldwide, which he said is roughly comparable to adding 1.5 times the U.S. demand alone in that time. Much of this was because of major growth in China, India and Brazil – though N demand for U.S. corn rose as well, to meet ethanol manufacture (and because N doesn’t store in the soil like P and K do).
Anhydrous ammonia, a chief nutrient for corn growers, is made from N and hydrogen from natural gas, which used to account for 70 percent of the cost of its manufacture. After 1999, as natural gas costs went up, Vroomen said that cost went up to 90 percent.

“As (natural) gas prices rose and continue to rise, producer margins were squeezed,” he added.

Higher natural gas prices dropped U.S. anhydrous manufacture and increased import demand. This squeezed international supplies and helped drive up prices worldwide, Vroomen said. Ocean freight rates for fertilizer increased 500-600 percent from January 2001 to May 2008 on higher demand from China, alone.
Another 2008 coming?

Once again, U.S. wholesale fertilizer prices are rising in response to demand. As of November, Vroomen said the United States had “very tight” P supplies and K inventory was tightening. Because crop prices are strong, however, he expects “solid application rates” of N, P and K. Are fertilizer prices likely to approach 2008-09 records? He didn’t make a solid projection, only saying the supply situation is better in some ways, but prices are “rising rapidly” on demand. For instance, shale gas production had helped drop U.S. natural gas prices before now. Oil and gas prices had also dropped from late 2008 highs, but as any driver can see, those are also going up.

Vroomen said 26 U.S. anhydrous plants have closed, but two have reopened. The cost to open a new plant is approximately $1 billion, and it takes about of 2 1/2 years to get one ton of product out of it.

Add to that investor jumpiness about whether natural gas prices will remain low, and he thinks it’s unlikely there will be many new U.S. anhydrous plants.
As for freight, he said ocean rates are significantly lower than in 2008, but rail rates continue to rise.

Much of this is from railroads charging more to haul anhydrous because of liability issues.

Tariffs are another consideration. China imposes export duties in peak seasons, and that typically begins in January. Vroomen pointed out, though, that for next year China moved its peak up by one month (now) and in 2011 it will begin “peak” in November.

Finally, the Earth gives and takes away, and what it can give is sometimes regulated by humans. In 2008, a sinkhole in Russia stole some of its K supply; a smaller one occurred recently. “These things are impossible to forecast,” Vroomen noted.

There was recently news of a new potential K supply in Brazil. He said these mines take 5-7 years to start producing – and in that time, global demand is likely to be higher, too.

In Florida, Vroomen cited the shutdown of a Mosaic Co. phosphate mine after a court injunction prohibited expansion into wetlands, as part of a lawsuit instigated by the Sierra Club and other non-governmental groups, according to Bloomberg News. The United States is still the world’s largest supplier of phosphate for P, Vroomen said, but available U.S. supplies have never been this low.

“Do we have enough (for 2011)? That’s a tough one to answer,” he said, explaining there could be localized shortages or spot delivery problems.