Global Fertilizer Outlook - 1

OMAHA (DTN) -- Despite significantly higher fertilizer prices across the globe throughout 2021, global nitrogen fertilizer demand appears to be set to increase in 2022. According to fertilizer analysts, demand destruction does not appear to be on the horizon.

Nitrogen supplies continue to be tight with various supply issues, but the price of nutrients could begin to fall in the second half of the year as supply returns. The number of corn acres in the United States in 2022 could affect nitrogen supplies.

GLOBAL N DEMAND TO INCREASE?

According to the International Fertilizer Association (IFA) Public Summary Medium-Term Fertilizer Outlook 2021-2025 (https://www.fertilizer.org/…) released in August of 2021, global fertilizer use (N+P+K) was estimated at 198.2 million metric tons (mmt) in 2020-21, which was almost 10 mmt or 5.2% higher than in 2019-20. This was the largest increase since 2010-11.

The rate of growth in all fertilizer demand is expected to slow to 0.9% in 2021-22. IFA forecasts global fertilizer use to reach 199.9 mmt.

Nitrogen experienced a 4.1% increase in demand to 110 mmt in 2020-21. Annual growth in global fertilizer demand will be around 1% from 2021-22 to 2025-26.

Global ammonia production increased by 2.9 mmt in 2020, taking total supply to 185 mmt. From 2015 to 2020, global ammonia capacity increased by 6 mmt.

World urea demand is forecast to increase about 3% in 2022 to around 170 mmt, according to London-based consulting firm CRU. Chris Lawson, head of fertilizers for CRU, told DTN that demand destruction from higher nitrogen prices has been overstated.

The various supply issues globally are well established in 2021, from increasing demand to the supply-chain issues.

Lawson said nitrogen is a product that is fairly inelastic. While there are issues with supply causing prices to spike higher, farmers are still going to buy and apply the most important nutrient, he said.

"There are different ways of looking at demand destruction," Lawson said. "What might happen is North American farmers will get their nitrogen, but farmers in other parts of the world may be short some."

HIGH NATURAL GAS PRICES

One reason nitrogen prices climbed higher on the world market in 2021 is the situation with higher natural gas prices, specifically in Europe.

Natural gas prices have risen globally as countries reopen their economies and lifted COVID-19 restrictions, and thus natural gas demand increased. Higher prices earlier this fall in Europe caused fertilizer manufacturers to curtail production with changing margins.

CF Industries halted production at two United Kingdom nitrogen facilities in September because of the skyrocketing natural gas price. One plant reopened a week later, and the other plant reopened in October, thanks to a UK subsidiary deal.

While some might believe fertilizer producers could be limiting production of nutrients to increase the price, Lawson said nitrogen fertilizer producers are producing as much product as they possibly can. Many manufacturers are even delaying maintenance to their facilities to continue to produce much-needed tons of nitrogen, he added.

With production at full tilt, at some point, the supply will catch up with the demand and fertilizer prices will begin to level off. Lawson believes this could be seen by the second half of 2022.

U.S. CORN ACRES MATTER

What happens in North America, specifically the U.S., has a large effect on the global nitrogen fertilizer market.

According to a U.S. Geological Survey Mineral Commodities Summaries from January 2021 (https://pubs.usgs.gov/…), the U.S. is one of the world's leading producers and consumers of ammonia. Approximately 88% of the domestic ammonia consumption was for fertilizer use.

The U.S. produced an estimated 14 mmt of ammonia in 2020 with consumption at 16 mmt. Roughly 2 mmt of nitrogen imports were used that year, with Trinidad and Tobago providing 65% of the imports into the U.S. from 2016-19, with another 30% from Canada.

Samuel Taylor, farm input analyst for Rabobank, said another major factor of the nitrogen outlook in 2022 will be the number of corn acres planted in the U.S. There are some major questions about whether farmers would be willing to shift acres to soybeans and away from corn because of higher fertilizer prices.

Taylor said their models show positive margins remain by growing corn over raising soybeans. With corn prices at current levels, growing over 200-bushel-per-acre (bpa) corn offers a better margin than growing soybeans.

"I don't think you are going to see corn and soybean acres move much," Taylor said. "The economics clearly point to corn."

If there are some areas of the country where this shifting could occur, it might happen in the fringe areas of the Corn Belt. Farmers in areas already growing other crops such as wheat or cotton might be more willing to shift crops than in the heart of the Corn Belt, he said.

Josh Linville, director of fertilizers at StoneX Financial, said he believes U.S. corn acres will come in around 91 million acres in 2022. However, some analysts believe this number could be closer to 92 million to 93 million acres, he said.

World demand for nitrogen fertilizers was fairly high in 2021, thanks to higher commodity prices across the globe pushing farmers to apply more nutrients. Nitrogen demand could be even higher for 2022, which is bad news with all the supply issues seen so far this year.

"We just saw so many supply issues in 2021," Linville told DTN. "If something could go wrong, it when wrong in 2021."

Short of more supply issues, Linville believes global nitrogen fertilizer production will most likely return to normal in 2022. The high prices will be around for quite some time until this production can make it through the system, he said.

Linville said he hears from farmers quite regularly about high prices and understands their frustration with these historically higher prices.

He recommended producers try and take the emotion out of the equation and make the most logical fertilizer plans for their own particular farming operation. Every farmer's fertilizer plan will be different from other farmers, but every farmer should at least have a fertilizer plan, he stressed.

Russ Quinn can be reached at russ.quinn@dtn.com

Follow him on Twitter at @RussQuinnDTN

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