Global demand still driving nitrogen prices

Southwest farmers can expect nitrogen prices to remain high in the coming years, primarily due to limited increases in supply and dramatic increases in demand globally.

Doug Stone, nitrogen marketing manager for Terra Industries says there is only one word he can think of to describe nitrogen marketing in 2008 — WOW. “We did not expect the dramatic price spike in June and July, nor the equally dramatic price decline in October and November,” he says.

Worldwide nitrogen production has climbed gradually, from 19.5 million tons in 2006 to a projected 20.8 million tons in 2009. Globally, demand for nitrogen has increased dramatically as has demand for nitrogen for non-agricultural purposes, Stone notes.

For example, he says the U.S. is projected to use about six million tons of urea in 2009. The 2009 total is expected to be up slightly from 2008, primarily due to increased planting of high-nitrogen crops, like corn, worldwide.

What has been a slow increase in nitrogen demand worldwide is expected to skyrocket in the next few years. India, for example, used virtually no urea in 2006 and over a million tons in 2008. By 2015, India is expected to use 12-15 million tons annually.

Demand in the U.S. for urea is expected to increase in the last quarter of 2008 in response to the upcoming 2009 crop. However, globally supplies will continue to trend below demand.

By 2010, crop projections worldwide are for 57.5 million more acres of cropland, requiring 3.5 million more tons of nitrogen. Where this extra nitrogen will come from is a good question, according to Stone.

If the Energy Independence and Security Act (EISA) and federal biofuel tax credits were to be rescinded, it would only reduce agricultural demand for nitrogen by 2 percent annually between 2008-2015.

Stone estimates that over the same time period industrial demand for nitrogen will grow by a minimum of 2 percednt annually, effectively mitigating any negative impacts felt by the reduced biofuel production.

Global demand for high protein meat will help drive demand for nitrogen in 2009 and beyond. In the U.S. 55 percent of all grain grown is used for livestock feed. Chicken requires 2.6 pounds of corn, soybean and ddg (distiller's dry grain) to produce a pound of edible meat. Swine requires 6.5 and beef 7 pounds of grain per pound of meat. Demand for grain alone requires 3.5 million pounds of nitrogen in the U.S.

China's decision to keep nitrogen fertilizer products made in China in the country has been a direct cause of price volatility in the U.S. Price volatility of nitrogen will likely continue on into 2009 as fertilizer dealers try to sell high cost mid-2008 products in a market in which prices have fallen dramatically.

In October 2008, China raised its export duties on nitrogen fertilizer and synthetic ammonia from 100 percent to 150 percent. The new export duty rate will be in effect at least until the end of this year. The export duty on fertilizers not containing nitrogen will remain unchanged at 100 percent.

This in effect took China out of the nitrogen export market, and it wasn't a complete surprise to the fertilizer industry. In April 2008, the Chinese government imposed an ad hoc export duty on mineral fertilizers until Sept. 30 with the aim of stemming chemical fertilizer exports from the country at the height of the Chinese agricultural season.

Since the start of April, when China levied export duties on mineral fertilizers, world ammonia prices have surged by 59 percent, those of carbamide have increased by 98 percent and those of ammonium nitrate have surged by 93 percent.

For example, the price of ammonia fell from Nov. 1 to Nov. 15 from $530 a ton to $350 a ton. In that same time period oil prices fell by $10 per barrel. Stone stresses that nitrogen costs are closely linked to oil prices on a worldwide basis.

Stone says tight nitrogen supply and demand balance will be directly influenced by different drivers. Supply in 2009, he says, will be driven by:

  • Imports will be the key driver in supply availability.

  • Lack of Chinese export volumes will continue to keep a tight balance in the market and raise prices to high levels.

Demand for all nitrogen products, he says, will be driven by strong planting expectations for 2009 and rising industrial usage.

Global grain demand also will be a strong global driver of nitrogen demand. Factors directly influencing global grain demand include:

  • Historically low global stocks-to-use ratios

  • Biofuels driving grain requirements.

  • Rising income levels improve diets for a growing population.

The nitrogen outlook for 2009, Stone says, depends on U.S. prices, which need to be competitive with global markets to attract both urea and UAN import volumes. Tight supply and demand balances should mean higher prices for nitrogen as growers begin to purchase fertilizer for their 2009 crops.

TAGS: Management
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