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Stu Ellis: The US Farmer Is Not The Only One Bidding For Fertilizer

Apr 18, 2011

You might see an opportunity to increase your profitability by expanding your operation to include nearby farmland that is being offered for cash rent.  However, your bid that may have been generous was not competitive with someone else, and you lost the opportunity to control a significant farmland resource.  That was the point made by Purdue economists in describing “drivers of change” in agriculture in the latest issue of Choices magazine.  Another one of those resources is fertilizer, and if you want to control some of it for your own use, you will have to outbid farmers who do not speak your language.

As a quick refresher about “drivers of change in agriculture,” review the February 8 posting of the Farmgateblog.  It indicates profitability will be a function of several dynamics, one of which is resource availability, and one of those resources is fertilizer availability.  Fertilizer use is going up, and the availability will go to the highest bidders.

The growing global demand for higher quality and quantities of food will place a premium price on nitrogen, phosphate, and potash.  Those are not only needed for production of crops for food, feed, and fuel, but changes in global markets have created environmental issues that impact fertilizer use and price.  As part of its 2011 Outlook, the Iowa State University economists of the Food and Agricultural Policy Research Institute have attempted to analyze fertilizer application rates and project demand for various crops in various parts of the world.  They look beyond corn and soybeans, and included many international crops that will have an impact on fertilizer demand.

For the 2011/2012 crop, global fertilizer application will be 179 million metric tons, which is combination of 104 mmt of nitrogen, 42 mmt of phosphate, and 33 mmt of potash.  That is a 2.29% increase from the 2010/2011 crop, which Iowa FAPRI says is a function of a 1.6% increase in cultivated lands and more intensive fertilizer use on most commodities.  Interestingly, soybeans see a reduced use of fertilizer, even though there is an increase in global acreage. 

Where is fertilizer used?  More than two-thirds of global fertilizer use occurs in China, India, the US, and the 27 nations of the European Union, and China is the top consumer and applicator of fertilizer.  FAPRI says China “is characterized not only by large crop areas but also by an intensive use of fertilizers, which is comparable to (and even higher than in the cases of wheat, sunflower seed, peanuts, cotton, sugarcane, and sugar beet) those of the U.S. and EU-27 countries. India, on the other hand, is the third-largest consumer given its larger crop areas but with its more moderate fertilizer application rates.”  China’s fertilizer use will increase by 1.37% this year compared to last year, with higher application rates.  India’s use will increase by 0.8%, and the US will see a 2.93% increased use because of increased corn, wheat, and sorghum acreage and increased application rates.

Over the next 14 years studied by the FAPRI economists, there will be a slow increase in fertilizer use on all commodities except for wheat.  For corn, there will be increased use, which is a function of increased acreage and increased rate of application.  The cutback on fertilizer use on soybeans will be a function of more acreage in countries where fertilizer use is not as high.

Fertilizer is a resource that will have a dynamic impact on food production in future years, and whoever can outbid other farmers will have access to that resource.  Compared to last year, fertilizer use will be at an increased volume, which is dependent upon application rate and total acreage.  Corn will be getting more fertilizer, because of higher rates and more acres, but soybeans will be getting less, because acreage is increasing in nations where fertilizer application is not a priority.  It is a priority in China, where use will be higher than last year.