There is a need for much more world grain production to replace drawn down inventories, and farmers around the world are going to need high volumes of commercial fertilizer to reach those higher levels of production. Even with this high fertilizer demand and high crop commodity prices, fertilizer companies are not in a position to repeat the extreme run-up of fertilizer prices seen in 2008.
Wayne Brownlee, chief financial officer with PotashCorp of Saskatchewan, explained the outlook for fertilizer pricing related to world agriculture production during a Scotiabank fertilizer conference in Toronto, Canada, on Wednesday.
There are two big worldwide ag business situations—high commodity prices for farmers and fertilizer prices only going moderately higher.
“You are seeing the push on agricultural commodity prices that is very widely based. This is not just a grain story any more. It is an agricultural production story that is very broadly based. In the 2008 run-up, it was really the grain sector that was pushing up prices, and now it is very broadly based,” Brownlee said.
“There is not a rapid ramp up in fertilizer prices, like the spike that we saw in 2008. What you are seeing is more moderated prices. The price increase in fertilizer has not matched the increase in agricultural commodity prices so it is leaving the farmer in a very healthy position,” he said.
PotashCorp is the world leader in potash production, but the company is also involved in nitrogen and phosphorous production, too. But market analysts always turn to PotashCorp for explanations about potash more than the other two. Brownlee provided insight from the potash industry perspective.
“We think worldwide operational capacity (for potash) is up to 60 million to 61 million tons, and we think we are going to see sales levels return close to that. The market is very healthy. I would say that probably every producer has been able to sell everything they could produce for the first six months of this year, and I think you are going to see the same thing through the rest of the year. As we all know, things can happen, but as of right now the outlook is exceptionally good.
“This has allowed potash prices to continue to increase on a moderated basis in bite-sized pieces in a way that we think is healthy for the marketplace. It certainly allows farmers to generate excellent margins in their business, and one of the things that we don’t look forward to obviously is a repeat of 2008-2009. We’re having a firm foundation under customer engagement on an ongoing basis so that we can see growth in prices but on a moderated basis that ensures that the volume does not become volatile again,” Brownlee said.
Several fertilizer executives provided insight during the Toronto conference. A Canadian Press write-up provides additional perspective and can be read here.