The Fertilizer Situation

MO-AG Winter Convention & Legislative Conference Lake Ozark, MO

January 7, 2009

Ford B. WestTFI President

Average Monthly Wholesale Prices.Source: Green Markets, published by Pike and Fischer.

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lars

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U.S. Urea Price, f.o.b. Gulf Coast

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U.S. Ammonia Price, f.o.b. Gulf Coast

Average Monthly Wholesale Prices.Source: Green Markets, published by Pike and Fischer.

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Potash Price, f.o.b. Saskatchewan, Can.

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U.S. DAP Price, f.o.b. Central Florida

Average Monthly Wholesale Prices.Source: Green Markets, published by Pike and Fischer.

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U.S. Urea Price, f.o.b. Gulf Coast

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U.S. Ammonia Price, f.o.b. Gulf Coast

Average Monthly Wholesale Prices.Source: Green Markets, published by Pike and Fischer.

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lars

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Potash Price, f.o.b. Saskatchewan, Can.

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lars

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U.S. DAP Price, f.o.b. Central Florida

Index of Corn and Fertilizer Prices

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1998

July

1999

July

2000

July

2001

July

2002

July

2003

July

2004

July

2005

July

2006

July

2007

July

2008

July

20

00

= 1

.0

Fertilizer

Corn

Source: Computed from data reported by the National Agricultural Statistics Service, USDA.

Peaked in June 2008

Peaked in September 2008

Recap: Factors Resulting in Higher Fertilizer Prices

• Dramatic Increase in World Nutrient Demand• More Recently, Rise in U.S. Nutrient Demand• Decline In Domestic N Supply – Natural Gas P’s!• Which resulted in Increased U.S. Imports of Nitrogen• Rising Energy P’s => Higher Production Costs• Rising Raw Material P’s => Higher Production Costs Tighter supplies of all nutrients!• Increased Shipping/Distribution Costs (ocean freight; rail; barge; truck)• Falling Value of the U.S. Dollar• Curb on food and fertilizer exports by selected countries

What’s Changed?

• High Fert P’s and Lower crop P’s => Demand Destruction• Some recovery in the value of the US Dollar• Changing Shipping and Distribution Costs:

1. Ocean freight rates have very recently collapsed;2. Gasoline and diesel fuel prices have declined; but3. Rail rates to move ammonia remain high and are expected

to continue to climb.

• The P’s of some raw material have declined – ammonia & sulfur

• We see some of the curbs on food and fertilizer exports by selected countries slowly being removed

Industry Structure

* Cost of greenfield in Saskatchewan** Estimated costs exclude infrastructure outside plant gates (rail, road networks, utility systems, port

facilities, etc.)*** Ammonia/urea complex

Potash

(KCl)

Nitrogen

(NH3)

Phosphate

(P2O5)

Availability of Raw Materials Very Limited Relatively Abundant Limited

# of Producing Countries 12 ~ 60 ~ 40

% Gov’t Control 19% 57% 47%

Industry Operating Rate 91% 86% 86%

5- Year Demand Growth 5.6% 3.7% 3.7%

Time for Greenfield 5-7 years 3 years 3-4 years

Cost for Greenfield* $US 2.8 billion** 2 million tonnes

$US 1 billion*** 1 million tonnes NH3

$US 1.5 billion 1 million tonnes P2O5

Source: Fertecon, British Sulphur, and PotashCorp.

NH3

Phosphate

Source: Mosaic

28.4%

33.1%32.8%

20.7%

9.4%

0.0%

8.6%

18.8%

0%

5%

10%

15%

20%

25%

30%

35%

Production Exports

2007 Ammonium Phosphate Production & ExportsWorld Share by Country

USA China India Russia

Source: International Fertilizer Industry Association.

Cost of Major Inputs into DAP Production

$-

$250

$500

$750

$1,000

$1,250

2005 July 14, 2008

Phosphate rock Sulfur Anhydrous ammonia

$ 144

$ 1,077

Source: Pentasul

ADNOC – Abu Dhabi National Oil Company – Monthly Posted PriceVancouver - Contract PriceUpdated November 7th, 2008

International Sulphur Prices

VANCOUVER - ADNOC PRICE COMPARISON

0

100

200

300

400

500

600

700

800

900

98 99 00 01 02 03 04 05 06 07 08

Vancouver

ADNOC

$/tonne

July 1, 2008 - $820/tonne

Aug 1, 2008 - $770/tonne

Sept.1, 2008 - $580/tonne

Oct.1, 2008 - $200/tonne

Nov.1, 2008 - $40 ?

Potash

Source: Mosaic.

World Potash Production & Exports by Country - 2007

0

2

4

6

8

10

12

Canada Russia Belarus Germany Israel China Jordan USA Spain U.K. Brazil Chile

mil

lio

n m

etri

c to

ns

K2O

Total Production

Exports

Source: IFA.

World K2O Exports - 2007Canada; 39.0%

Russia; 19.9%

Belarus; 16.1%

Germany; 11.2%

Israel; 7.5%

Jordan; 3.7%

Spain; 1.2%

U.K.; 0.8%

USA; 0.5%

Chile; 0.1%

Source: IFA.

27.2 million metrictons K2O to over

100 countries

ConcentrationTop 1 - 39 %Top 2 - 59 %Top 3 - 75 %Top 4 - 86 %

Over 80% of production exported compared to

12.5% for world grains

Canada93.4%

Russia3.6%

Belarus2.5%

Other0.5%

U.S. Potassium Muriate Imports by CountryFY 2007/08

Top Fertilizer Importing Countries Share of Share of

FY05/06 World Country

Rank Country Imports Consumption

(5) France 4.2 % 79 %

(4) India 8.0 % 26 %

(3) Brazil 9.0 % 68 %

(2) China 11.4 % 16 %

(1) United States 16.1 % 56 %

Top 5 48.8 %

Source: International Fertilizer Industry Association.

Production is not keeping up with demand growth– Production has fallen short of use in 7 of the last 9 years– Even with a big increase in production in 2008, stocks are tight– Deficit since 2000 is 220 million metric tons

Demand growth will probably accelerate– More grain used for biofuels production– Income growth leads to improving diets in key developing countries

• Especially India and China

World grain stocks have dropped to historically low levels– Stocks are the lowest since the early 1980s– Stocks-to-use ratios are even tighter

Production will need to continue to increase!

Some Observations About the World Grain Market

Source: Doane Advisory Services.

222.4

259.3

190.2

97.1

114.4

124.8

203.4

0 50 100 150 200 250 300

Total Grains

Coarse Grains

Corn

Wheat

Soybeans

Cotton

Rice

Percent of World

U.S. Crop - Current Yields As A Percent Of World

Computed from data reported in WASDE, USDA.

Product Stewardship Efforts

Product Stewardship Efforts

Right Product, Time, Rate and Place Paradigm

Right Place

Right Product

Right Rate

Right Time

Right Nutrients

• Select appropriate nutrients and on farm nutrient sources for the cropping system.

• Soil Testing

• N, P, K and micro-nutrient data

• Enhanced fertilizer efficiency

• Nutrient management planning

Right Time

• Application Timing

• Controlled Release Technologies

• Inhibitors

• Fertilizer Product Choice

Right Place

• Application method

• Incorporation of fertilizer

• Buffer strips

• Conservation tillage

• Cover cropping

Right Rate

• Soil testing

• Yield goal analysis

• Crop removal balance

• Nutrient management planning

• Plant tissue analysis

• Record keeping

• Variable rate technologies

• Site-specific management

Nutrient Removal to Fertilizer Use Ratio for US Grain Corn

0%

20%

40%

60%

80%

100%

120%

140%

160%

1963 1973 1983 1993 2003

NP

K

P: 106%

K: 85%

Improvement: %

Corn Yield: 52%

N: 42%

Source: USDA-NASS; PPI

What is Nutrient Use Efficiency?

• Crop Recovery Efficiency (RE) = Increase in uptake by the plant per unit nutrient added usually expressed as %%

• Example:Example:– N uptake when no N applied = 30 lb/A– N uptake when 100 lb applied = 90 lb/A– (90-30)/100 = 60% recovery60% recovery

• System Recovery Efficiency (RE) = output of nutrient in harvested crop as % of inputs

• 90/100 = 90% recovery90% recovery• Short- versus long-term?Short- versus long-term?

Conclusions• Ecological intensification is required to increase yields and reduce

environmental losses from existing farmland and preserve/protect pristine lands, forests

• Increased utilization of nutrient management and conservation practices is possible

• Increased demand for all commodities, including biofuels and fertilizer, requires that the products be used as efficiently as possible

• Increases in nutrient use efficiency means higher plant uptake, higher yields, less loss to the environment

• Risk-reward ratio(s) in current farming practices are very high

Nutrient Use Efficiency in U.S. Corn Production

0.61

0.84

1.03

1.33

2.10

2.89

1.09

1.65

2.49

0.0

0.5

1.0

1.5

2.0

2.5

3.0

1980 1990 2005 1980 1990 2005 1980 1990 2005

bush

els

prod

uced

per

lb. o

f nu

trie

nt a

ppli

ed

Nitrogen Phosphate PotashSource: Computed by The Fertilizer Institute from data reported by USDA.

1980 2005 Change Bil. Bushels %

U.S. corn production 6.40 11.11 + 74

Nutrient Use on Corn Mil. S. Tons %

Nitrogen 5.2 5.4 + 3 Phosphate 2.4 2.9 - 20 Potash 2.9 2.2 - 24 Total 10.6 9.6 - 10

Fertilizer Nutrient Demand, FY05/06 and FY10/11

0

25

50

75

100

125

150

175

200

United States Rest of World World

mil

lion

sho

rt to

ns n

utri

ent

Demand in FY05/06 Demand Growth - FY05/06 to FY10/11Source: IFA, TFI.

24.1

179.7

203.8

31.0 mil. nutrient

tons

5-year projected growth in nutrient demand in rest of world equal to adding new markets the size of

USA and Brazil to world demand!

+ 20.0 %

World Nitrogen Consumption

-

20

40

60

80

100

120

FY1995/96 FY2000/01 FY2005/06 FY2010/11

mil

lion

sho

rt to

ns N

United States Rest of World

+ 5 %

+ 11 %

+ 20 %

Source: TFI and IFA.

World Phosphate Consumption

-

5

10

15

20

25

30

35

40

45

FY1995/96 FY2000/01 FY2005/06 FY2010/11

mil

lion

sho

rt to

ns P

2O5

United States Rest of World

+ 6 %

+ 13 %

+ 18 %

Source: TFI and IFA.

World Potash Consumption

-

5

10

15

20

25

30

35

FY1995/96 FY2000/01 FY2005/06 FY2010/11

mil

lion

sho

rt to

ns K

2O

United States Rest of World

+ 7 %

+ 17 %

+ 21 %

Source: TFI and IFA.

USA 1.00 : 0.35 : 0.39China 1.00 : 0.39 : 0.20India 1.00 : 0.41 : 0.19

Producers Responding to Lower Demand in Short Run

• Capital Costs Remain High• Capital More Difficult to Get Due to Economic Meltdown

Plant and Mine Expansions Delayed and/or Scrapped!

• Fertilizer Production Cutbacks and Shutdowns:– Nitrogen:

• Trinidad, Canada, Russia, Ukraine, Italy, Romania , Estonia, Libya, Turkey, Hungary, Poland, and Germany

– Phosphate:• Morocco, Russia, Tunisia, Lithuania, and USA

– Potash:• Russia, Germany and Canada

Thank you!

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