The food crisis is back on the agenda

Most fertilizer suppliers and traders can look back on 2010 as a very satisfactory year for business, reflecting the buoyancy of commodity markets overall. Consumption for the year is expected to show a worldwide increase of some 4.5% over 2009, with notably higher increases evident among the economic pace-setters of China, India and Brazil. Across the nutrient sectors, fertilizer supply and demand are in good balance and prices have continued to firm, boosting company margins. Fertilizer producers and traders can draw particular satisfaction from the uplift in prices throughout the past year. At the start of 2010, urea prices were around $265-272/t fob Yuzhny. Urea began trading in 2011 at around $377/t – a year-on-year uplift of around 41%. The gains posted in the phosphate sector were even higher. The Tampa DAP benchmark price was in the $390-395/t fob range in early January 2010: the January 2011 equivalent was
$597-600/t – a year-on-year gain of 52%.

Only in the potash sector did average prices remain static, the old year ending as it began, with spot-market KCl being quoted at around $390/t fob Vancouver. The leading potash suppliers rolled most contracts over on previous price levels or else posted very marginal increases. However, all this is set to change in 2011 as buyers appear more prepared to accept higher prices. Recently, Belarus Potash Company announced that it had settled first-half 2011 contract terms with China at $400/t cfr – an increase of $50/t on the 2010 price. The rise is similar to increases in the international market between the second quarter of 2010 and the first semester of 2011. Industry analysts forecast further rises in world potash prices this year, noting the strong demand for all fertilizers and high crop prices.

A farming bonanza is particularly evident in North America. The US Department of Agriculture (USDA) has noted falls in stock-todemand ratios, which pushed corn prices to $6.37/bushel in the first week of January, the highest level since July 2008. (Financial Times, 12 January 2011) The United States is the world’s largest corn supplier, meeting more than half of global import needs. As an important component of animal feed, corn availability has tightened in the wake of the continuing surge in demand for meat in emerging markets. Record ethanol production is also expected
to take up nearly 40% of the US corn crop.

Looking further afield, USDA notes a tighter availability for grain and oil seeds worldwide. The effects of the floods in Queensland, Australia are still being assessed but initial estimates are for Australia’s production of wheat to be down by 500,000 tonnes. By contrast, Argentina and Brazil have suffered from chronic drought,
making the prospects for the imminent crop harvests look increasingly fragile. The Financial Times reports that agricultural traders and analysts warn that the latest global yield and stocks data provide no further room for weather problems. Although rice prices have been stable, the tightness of wheat, corn and soybean markets has led international market prices for these commodities to surge. The jump in these prices has in turn prompted the FAO to warn of a repetition of the 2008 global food crisis if they rise further, with a high risk of a recurrence of food riots in developing countries. Meanwhile, Libya, Jordan and Morocco have taken measures to control food prices after Algeria and Tunisia were wracked by violent protests.

Representing the worldwide fertilizer industry, IFA is monitoring these developments. Noting that the speed and extent of the recovery in fertilizer sales and consumption in 2010 surprised most industry analysts, IFA is projecting growth in global fertilizer consumption of 4.7% for 2010/11 and 3.8% for 2011/12, by when nutrient application rates would have recovered to the levels seen before the economic crisis of 2008.

It may be argued that among the several causes of the current low cereal stocks, reduced nutrition application rates in the immediate aftermath of the 2008 crisis have led to the lower crop yields reported in the United States and several other strategic cereal exporters. Now that the demand for nutrients has revived and is set to rise further, could fertilizers again be a limiting factor that holds back the growth in food production that will be vital in feeding a growing world population? IFA believes not, stating that the fertilizer industry has learned the lessons of the earlier food crisis and is undertaking extensive development projects that will add new production capacity.

According to IFA’s estimates, between 2010 and 2015, some 55 urea units, 20 potash expansion projects and 40 processed phosphate facilities are planned for completion worldwide. Having spent an estimated aggregate cost of nearly $40 billion on new capacity for the three major nutrients since 2008, the industry is set to invest a further $80 billion in bringing new capacity on stream. While global urea capacity is projected to expand by 30% between 2009 and 2014, and potash and phosphates capacity by 25% and 31% respectively during the same period, supply/demand balances may well remain tight if global nutrient demand continues to rise at the current robust rates. The challenge furthermore remains to ensure that farmers everywhere in the world can
procure the nutrients they need at affordable prices.