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Agrimarketing : March 2009
OURWORLD HAS CHANGED: PART TWO IN A SERIES THECROPNUTRIENTINDUSTRY T by David Ash, Business DevelopmentManager,ABG, an Adayana Company here is no question people around theworld are placing a greater emphasis on a higher standard of living than previous generations. As incomes rise andmiddle classes emerge in developed nations, consumers diversify their diets and move away fromstarch-based sta- ples to protein-richmeats. Increased grain production helps feed this growing demand for protein from meat sources. Increasing global food demand, alongwith the diversion of more grain into ethanol production, leaves farmerswith the challenge of producing higher yields tomeet increasing global demands,while urbanization and development are decreasing the number of acres avail- able for production. Increased crop production on less land, combinedwith increasing pro- duction costs, brings an ever-increas- ing importance to the quest for higher yields and greater quality. More than ever, the crop nutrient industry is in a unique position to meet farmers’ needs for higher pro- duction, both in U.S.markets and around the globe. MARKET OVERVIEW Three key factors influence today’s crop nutrient industry. Growth inWorld Population and Decrease in Production Acres The increase in global population and urbanization are driving a decrease in available tillable land. This factor causes a demand for greater crop production and yields. Though adverse economic condi- tions are negatively affecting the growth of developing and developed countries, therewill continue to be a steady demand for higher crop pro- duction tomeet the changing dietary requirements and needs of con- sumersworldwide. CropNutrient Sales in the U.S. Asecond factor is the strong outlook for crop nutrient sales in the U.S. is 40 AgriMarketing s March 2009 thatAmerican farmers have planted a greater percentage of corn in recent years tomeet a growing demand for ethanol, although this demand has fallen off in recentmonths. This brought recent sharp increases in U.S. commodity prices,which also have fallen off.Natural gas inputs remain high,which is causing fertil- izermanufacturers to produce less and importmore. Finally,U.S. crop nutrient capacity is expected to remain fairly consistent in the com- ing years. Price Volatility Because of recent economic chal- lenges, price volatility has become an issue throughout the agriculture industry.Grain and fertilizer prices continue to be subject to price volatil- ity due to the fluctuatingwinds blow- ing across theworld’s economic land- scape. Oil prices, shipping and production costs, coupledwith the overall financial situation of global economies, have had amajor impact on the fluctuation in natural gas and nitrogen-based fertilizer prices. As oil prices rise and fall, so does the price for crop inputs, especially fertilizers and other petroleum-based crop inputs. Government regulation and policy around theworld also dictate supply and demand balances that spur volatility. Growing fertil- izer demand in Brazil, Russia, India and China (BRIC) countries have created shifts in policy to ease the pain of higher fertilizer prices by offering price subsidies to farmers. Caption TRENDS AND ANALYSIS Even though turmoilwithin the global commoditymarketswill continue, the outlook for global andU.S. crop nutri- entmarketswill remain strong.At the same time, supply and price risks con- tinue to drive themarket. Nitrogen Nitrogen prices rise and fall, based on the price of oil and natural gas. Even though prices have fallen recently, they are expected to rebound as demand grows over time.Nitrogen prices are tradition- ally lower in Russia, LatinAmerica, and Indonesia in comparison to other parts of theworld. In the U.S., high production costs have driven up our nitrogen imports fromlower- cost producing regions. Nitrogen demandwill remain strong in the U.S. as corn acres planted remain high.Although nor- mal corn/soybean crop rotation and poor springweather reduced corn plantings in 2008, overall nitrogen demand in the U.S. remained strong and imports of nitrogen increased. Both ammonia and urea prices have decreased recently due to delayed purchases in keymarkets in