For the first time in almost two decades U.S. monthly oil production exceeded imports this past fall, according to the U.S. Energy Information Administration (U.S. E.I.A.). U.S. crude oil stocks are projected to reach a five-year high in 2014. Plentiful stocks and increased domestic production reflect a common theme in the 2014 outlook for energy, fuel, and fertilizer markets.
It’s hard to find fundamental support for any upward price pressure. However, continued strong global demand could prevent price declines beyond the normal off season price cycles.
The boom in domestic energy production could be the medicine needed to return some stability in petroleum prices after the roller coaster ride of the last five years. Gasoline inventories were running higher this fall, and fuel efficiency gains have moderated demand. Both indicate some relief in 2014 gasoline prices, averaging below $3.50 for the first time in three years.
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While distillate inventories (mostly diesel and heating oil) continue lower with strong export demand, refining rates are expected to keep pace. Expect similar relief in 2014 diesel as well, but chances of a cold winter could create some price pressure on the fuel segment. The natural gas price outlook is a mixed bag. Short-term fundamentals including strong domestic production replacing imports, level demand and even some reduction in power generation demand all point to a steady price outlook compared to 2013. But on the horizon is the possibility of significant export demand that seems to be driving as much as a 10 percent increase in 2014 natural gas price forecasts.
Fertilizer prices experienced some sharp declines in late 2013, falling as much as 15 percent to 25 percent from last spring as inventories remained high. Unlike the short-lived price declines in 2010, some evidence indicates that easing fertilizer prices may have some staying power with significant expansion of global production capacity. U.S. producers are the low-cost supplier of ammonia and urea to the domestic market, reflecting competitive natural gas prices and lower transportation. A stable domestic natural gas supply supports a continued strong supply of domestic fertilizer.
An expected reduction in corn acres for 2014 should ease fertilizer demand and help sustain lower prices. Longer term trends suggest that growth in global supply of nitrogen, phosphate, and potash will all outpace expected demand, sustaining moderate prices.
The 2013 breakup of two companies from Russia and Belarus has created plenty of uncertainty in the global supply of potash, and likely contributed to price declines last fall. Accounting for a significant portion of the world supply of potash, the split would suggest new competition, a battle for market share, and increased global supply. However, rumors of political and/or legal intervention and possible collaboration prevent any prediction of a conclusion.
Some have suggested this year could be time to catch-up on soil fertility deficits that we have delayed addressing because of high prices. Many producers are not eager to lock in what appears to be minimal profits with a weak commodity price outlook. However, waiting around for further price declines is risky. Foreign demand remains strong and export bids are likely to prevent substantial declines from today’s prices. The prudent course of action is to lock in at least a portion of your fertilizer needs at these improved prices.
Stephen Klose is Professor and Extension Economist with the Texas A&M AgriLife Extension Service
Phol Kenkel is Regents Professor with the Department of Agricultural Economics, Oklahoma State University