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Ontario Grain Farmer Magazine is the flagship publication of Grain Farmers of Ontario and a source of information for our province’s grain farmers. 

2012 fertilizer outlook


ontario farmers heading to the fields this spring will undoubtedly find fertilizer input costs higher than what they were a year ago. Ongoing strong global demand caused by tight grain reserves has been keeping the market buoyed since the purchasing cycle began in July of 2011. Fertilizer ending inventories were critically low coming out of the spring planting season and prices quickly moved up as sellers anticipated aggressive restocking programs in North America and Europe.


However, apprehension in global financial and credit markets has been providing a counterbalance to this generally bullish supply and demand picture. This has so far helped to keep a lid on aggressive price increases and is a contributing factor to market volatility that creates occasional market dips. However, buyers should stay close to the situation because fertilizer market fundamentals will eventually outweigh outside market influences and prompt availability will be the determinant of final trade values.

change from last year
Looking back a year ago, the fertilizer industry was working through relatively comfortable carryout inventories as they started buying for the 2011 crop. Purchase interest was strong, but evenly spread out over the second half of 2010 and the first half 2011. Price levels were low enough to encourage distributors to take ownership well in advance of seasonal demand.

Contrast this with the July-December timeframe of 2011. Demand in South America, China and the Indian Subcontinent was very robust and buyers interested in restocking warehouses in North America found limited product availability. Market prices reacted accordingly and have subsequently been trading near historical highs. Producers hoping to get ahead of this action would have had to purchase 2012 requirements even before planting their 2011 crop!  This would be a difficult prospect given that fertilizer markets trade on a cash and space basis and have limited hedge mechanisms available to them.

waiting on demand
The risk of owning product too early in a market that is trading near its peak is what has been keeping forward buyers on the sidelines. Purchase activity in North America is running slightly behind pace of the previous year as buyers wait for end-user (farmer) demand to off-set a portion of this risk.

Falling behind too far would be worrisome for a market that has limited inventory to begin with and is anticipating plenty of demand. The US could plant upwards of 93 million acres of corn this year and has perhaps as much as 57 million acres of wheat already in the ground. This would indicate nitrogen demand will be near record levels in a few short months. Waiting too long to position supply could actually have a sharper sting than owning product too early.

As nitrogen prices are expected to decline through the second half of calendar year 2012, buyers will be apprehensive about having too much inventory left over after planting is complete. This adds further to an anticipated tight spring supply situation. In an environment where businesses are trying to operate with limited inventory, unexpected disruptions to supply or significant increases in demand would have dramatic effect.

new production
On the supply side, new production capacity is likely to keep prices from running up too wildly. The International Fertilizer Association predicts that there are as many as 250 projects in various stages of development globally that will increase fertilizer availability between now and end of 2015.

At least three new significant nitrogen plants are due to come on stream this year in the Middle East and Eastern Europe and phosphate buyers will benefit from expanded capacity in Morocco and Saudi Arabia. Potash producers also continue to increase output at existing mines. Although demand growth is not anticipated to decelerate any time soon, this increased supply is likely to help the fertilizer market drift down through the summer months.

Most of these factors are characteristically unpredictable. Consider the potential for civil unrest in the Middle East or labour action by transportation providers — these are potential drivers of short-term price volatility but are difficult to foretell. Changes in demand due to weather conditions or increased application rates are equally difficult to manage. When supply is tight, availability tends to overshadow price.

For the short term, buyers will be focused on putting the finishing touches on this spring’s purchases. Fertilizer suppliers in Ontario need to communicate closely with their customers to ensure product supply is in place at competitive prices. Understanding potential demand for the upcoming spring season will help to minimize the impact of market variables and will be part of the formula for keeping Ontario farmers competitive globally through 2012. •


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