Global Fertilizer Outlook - 2

OMAHA (DTN) -- A worldwide pandemic, geopolitical rows and trade disputes dominated the news cycle for phosphorus (P) fertilizer in 2021. These various factors have limited nutrient supply somewhat, and with increasing fertilizer demand, this situation has raised fertilizer prices worldwide significantly.

Whenever China returns to the phosphorus fertilizer export market will have a large effect on the outlook of the fertilizer in 2022. This lack of supply has forced some countries in need of P to find other sources, which affects global supply overall.

SUPPLY ISSUES IN 2021

During 2021, several supply issues for phosphorus fertilizers have emerged.

In March, the U.S. International Trade Commission (USITC) determined that phosphate fertilizer imports from Morocco and Russia had affected the U.S. market (https://www.dtnpf.com/…). The ruling put countervailing tariffs ranging from 9% to 47% on some P imports.

Then, in September, China said it would not export P until June of 2022 at the earliest (https://www.dtnpf.com/…). China accounts for roughly 30% of the world P trade.

Chris Lawson, head of fertilizers for London-based consultant firm CRU, told DTN both events had a huge effect on the global P supply in 2021.

The P supply for the U.S. is in a corrective stage right now, he said. P is being sourced from other locations around the world.

U.S. P production in 2020 was 24 million metric tons (mmt) with P imports about 2 mmt. This number could fluctuate to about 2.5 mmt, Lawson said.

While the United States does not depend much on P exports from China, other countries do. Countries such as India, Australia and Asia are now forced to find product from other sources, Lawson said.

Most estimates have Chinese P production in the 90 mmt-to-95 mmt range yearly. Chinese P exports usually float around 5 mmt a year.

"China is not exporting phosphorus, as well as urea, until June of next year, but we do believe China will return to the market then," Lawson said.

With China out of the market, this situation does create more competition for the existing P on the world market, which has forced prices higher.

Lawson said the good news is phosphorus-producing countries such as Russia and Morocco have built up relatively strong capacity during the last five years. While there are some supply issues right now, the world is certainly not going to run out of P, he said.

Lawson believes that out of the three major fertilizers, P still has a bit to go to get to the upside of the market in terms of price. While N and K might be closer to a possible price decrease, P still might climb higher in price, he said.

P DEMAND INCREASING

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

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

Global P demand increased by 7.0% in 2020-2021, reaching 49.6 mmt. Phosphate rock production reached 207 mmt in 2020, which was slightly lower than in 2019. Phosphoric acid, meanwhile, was slightly higher in 2020, totaling 87 mmt.

Phosphoric acid production increased from 2015 to 2020 by 2.3 mmt, according to IFA. New capacity was seen in Africa, West Asia and the Emerging Europe and Central Asia (EECA) region with some closures in North America and East Asia.

IFA estimates the phosphoric acid capacity is forecast to increase 3.6 mmt in the next five years. Mostly, the expansion projects are located in Africa and the EECA region.

CRU believes global P demand will rise 2.9% from 2021 to 2022 after climbing 1.2% from 2020 to 2021.

LESS P APPLIED?

Despite the forecast for increased global demand for P fertilizers, there are some questions about how much P fertilizer U.S. farmers will actually apply with extreme high prices.

Samuel Taylor, farm input analyst for Rabobank, said P fertilizer is the nutrient in the lowest supply in the North American market. Applications of P in North America could fall around 10% in 2022 compared to 2021, he said.

Both P and potash (K) face less usage from the world's farmers if the price increases too much in the eyes of farmers. Farmers who are utilizing soil tests can easily examine what levels of P are available in their soils and decide to apply the nutrients or not on a field-by-field basis.

"Unlike nitrogen, cutting back on P and K can still occur with no yield loses," Taylor said.

Farmers do have many new tools in their toolboxes today that they did not have in previous times of high fertilizer prices, he said. These would include variable-rate application methods and more flexibility for financing inputs.

Taylor said he sees U.S. farmers are much more willing to use prepay discounts this fall as a way to save money now with the cash they have on hand from grain sales this fall.

Josh Linville, director of fertilizers at StoneX Financial, said history shows that farmers will be willing to cut back on P applications if the price is deemed too high.

When P prices climbed in 2008, P application was 32% lower compared to the prior year, he said. Potash saw a decrease of 40%.

Linville does not believe P demand will decrease in 2022 despite the current high price. Commodity prices at profitable levels will allow farmers to continue to buy and apply P fertilizers.

"With corn right around that $5.50/bushel level, that is still a pretty good price," Linville said. "Input prices are rising, but you can't risk lowering the overall yield."

ANOTHER USE FOR P

Linville said one emerging trend that could be a wild card to watch in the coming years is the use of P to manufacture lithium-ion batteries. An increasing supply of P is going toward this application and away from fertilizer use, which could create more supply-side issues in the future.

Despite the other supply and demand issues, the fertilizer industry will watch most closely in 2022 when China returns to the export market, he stressed.

"China is obviously going to be watched extremely closely in 2022," he said.

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

Follow him on Twitter at @RussQuinnDTN

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