Mystery surrounds •world demand' for fertilizer

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Anger. I can hear it in the phone calls and read it in the emails. Farmers are getting downright ticked off at the stories they are hearing from fertilizer dealers as spring planting approaches.

They're hearing fertilizer dealers say they can't take their money because they're not sure they will have anhydrous ammonia available in a few months. Or, they're telling farmers they will have it, but the price will be $650 per ton — and up. That's about $100 to $150 per ton higher than spring 2007.

In our investigations here at Farm Futures (see our series at www.farmfutures.com), we've been told by nearly every source that the cause of higher prices is higher world demand. That because corn futures are over $4 per bushel, more people are planting corn and so they need more nitrogen fertilizers. Or, they can afford to pay more for nitrogen fertilizers.

Put another way, China, India and Brazil are improving their diets and want more protein — so those countries need more corn to fatten livestock.

So someone somewhere is growing additional crops. But who?

That's where the 'world demand' argument begins to get thin.

"The common theme for defending high prices has been high demand, but there is precious little proof of how much higher that demand is,•bCrLf says Brian King, who farms near Marion, Ind., "especially given that the huge increase in corn acres that occurred in 2007 will not be repeated in '08. 

"Since the U.S. grows approximately 40% of the world's corn, are there numbers to support the claim that world wide demand for ag-related nitrogen has increased enough to justify $800/ton NH3? From what I know, there has not been an increase in acres worldwide, so where is the demand coming from?•bCrLf

These are legitimate questions. Cropping practices in major ag producing areas have not changed, at least not enough to warrant this claimed increased demand. 

Fertilizer companies explain this higher demand by talking about higher commodity prices and changing global diets. As economies in developing countries improve, so do the diets of the people who live there.  Meat consumption is growing. This results in a gradual shift away from rice and wheat to coarse grains and oilseeds for animal feed and biofuels.

According to USDA, grain consumption is now rising at close to 2% each year, compared to the historical rate of 1.2% per year. More importantly, grain consumption has outstripped production in seven of the last eight years.

The theory behind this higher world demand is that, lured by higher commodity prices, farmers everywhere will plant more crops and use higher rates of fertilizer to get better yields.

Meanwhile, fertilizer companies continue to make record profits. Third quarter 2007 net sales at CF Industries, a major U.S. nitrogen and phosphate producer, rose to $582.9 million, up 46 percent from 2006 third quarter.  The Belarusian Potash Company, the world's leading exporter of potash fertilizers out of Belarus and Russia, is also making record profits on ever-higher prices. It now controls 34 % of the world's total export market for potash.

You can't grow crops without fertilizer.  Are these fertilizer companies becoming the new Big Oil, with a growing monopoly on a key resource we all need for living?

My theory is a little more simple than the 'world demand' story. Input companies see those $4 corn prices and have determined that you can afford to pay higher prices for fertilizer. Both dealers and producers are getting a bigger cut of your pie. 

Let us know what you think. You can enter a comment below just by clicking on "anonymous" and giving us your feedback. How are prices where you live? What are you hearing from your dealers?

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