Fertilizer 2014

The Policies and Economics of Fertilizer

Bob Schroeder
CPS Tangent

World markets, risk management, and volatility are now the predominant drivers of fertilizer price and availability.  Everyone seems to have a lot of questions about fertilizer, investors, distributors, dealers and end users.  To some, fertilizer is the most volatile commodity out there, especially nitrogen based fertilizer.  What is the fertilizer market going to do in 2014?  Or what has it already started to do? 

Over the past decade, one characteristic of the fertilizer business is that is has gone from a domestic business to and international one.  Meaning, the supply chains are longer which adds to price volatility.  This is seen when we get into the season and the market suddenly realizes that there is not enough supply to meet demand.  Another big characteristic of the fertilizer business is that it is seasonal.  Even though fertilizer usage, “buying and selling” happen more often than they used to, even here locally in the Willamette Valley, there are still long periods of deferring buying decisions for dealers trying to decide when the best time and price to fill should occur.  With this kind of volatility in the fertilizer market, it has created an environment with a lot of risk. 

Information that is easier to find is another characteristic in today’s world.  You can check your computer, Smartphone, mobile device, etc., to see what crude oil or natural gas are doing at the moment, but you still cannot do it with fertilizer.  You can talk to your supplier or local field representative, but there is no central information point where fertilizer price is at because of the lack of risk management in fertilizer. 

Nitrogen based fertilizer prices in the mid 2000’s were tied to natural gas.  Since about 2006, the price of ammonia and urea has been driven by the profitability of agriculture and the acres of crops planted both here in the United States and worldwide.   Demand around the world in places like Brazil and China for nitrogen fertilizers has surpassed the supply, so the prices are now set by the strength of demand.  The U.S. also imports much more nitrogen fertilizer than we ever did in the past.  The bright light in all this for the nitrogen user is that the supply may change somewhat over the next few years as more modern nitrogen production facilities come on line both in the U.S. and worldwide.  
Likewise, the use and availability of the other major nutrients, Phosphorus and Potassium, have been tied to world demand as well as the control of supply.  See the following charts that show the trends in fertilizer the past several years.