Global Farming: Fertiliser prices in the spotlight | The Upside to Peak Fertilizer | The Saudia Arabia of Fertilizer

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‘The question no longer is whether a farmer should adopt biological farming methods, but rather if a farmer can afford not to do it.’ Farmers who adopt and apply biological farming methods save hugely on fertiliser costs and see an improvement in yield. And biological farming doesn’t mean the exclusion of chemical fertiliser, but the use of compost and manure as well.

Synthetic fertilizer prices are spiking upwards all over the world, inflicting economic pain on farmers everywhere. Another sign of the peak oil apocalypse? The industrial production of nitrogen -- a key synthetic fertilizer ingredient -- is extraordinarily energy intensive. So when energy prices rise, so do fertilizer prices. And if you buy the thesis that without manmade fertilizer the world will be physically incapable of supporting a population of nine billion, then you start to get very nervous.

Industrial Agriculture relies utterly on three elements -- two mined (potassium and phosphorus) and one synthesized from natural gas (nitrogen) -- to maintain the productivity of soil. In other words, unless we quickly move toward other agriculture models, we're likely to see increased geopolitical competition for these fertilizer resources, outsized power for the entities that control them -- and diminishing efforts to minimize the ecological effects of extracting them.
~ Global Farming: Fertiliser prices in the spotlight | The Upside to Peak Fertilizer | The Saudia Arabia of Fertilizer ~

“Food has something in common with energy — they're both commodities that you use up. And they're both worth fighting over. Naturally, if food is a problem that could blow up in our faces, the smart thing to do would be to think strategically.”
~ AgriWarfare & Strategic Food: The Agriculture Ticking Time-Bomb: F-O-O-D, is a Fighting Word, like OIL ~

None of this research considers the impact of declining fossil fuel production. The authors of all of these studies believe that the mentioned agricultural crisis will only begin to impact us after 2020, and will not become critical until 2050. The current peaking of global oil production (and subsequent decline of production), along with the peak of North American natural gas production will very likely precipitate this agricultural crisis much sooner than expected. Quite possibly, a U.S. population reduction of one-third will not be effective for sustainability; the necessary reduction might be in excess of one-half. And, for sustainability, global population will have to be reduced from the current 6.32 billion people to 2 billion-a reduction of 68% or over two-thirds. The end of this decade could see spiraling food prices without relief. And the coming decade could see massive starvation on a global level such as never experienced before by the human race.
~ Eating Fossil Fuels, Dale Allen Pfeiffer, From the Wilderness ~

Global Farming: Fertiliser prices in the spotlight

Farmers Weekly

‘The question no longer is whether a farmer should adopt biological farming methods, but rather if a farmer can afford not to do it.’

The sharp increase in agricultural product prices since 2006 has been mainly demand-driven. Input prices followed the sharp increase in the price of other commodities like oil and chemicals, and South African farmers were hard-hit by the sharp increase in fuel and fertiliser prices.

The Competition Commission recently announced it had taken steps against Sasol for alleged uncompetitive behaviour and TAU SA contracted well-known agricultural economist Philip Theunissen to investigate the fertiliser supply chain in South Africa.

The Maize Trust didn’t approve an application for funding this, as it felt another investigation wouldn’t add anything to what’s already known. However, local fertiliser manufacturer Profert came to its rescue with a R100 000 sponsorship.

What happened to fertiliser prices?

International fertiliser prices have increased sharply since 2006. The price of urea increased by 471% to US 206/t (R12 122/t) in April 2008, while diammonium phosphate (DAP) increased by 210% to US9/t (R8 333/t) in August 2008.

South African fertiliser prices followed this trend. The local price of urea increased by 294% to R9 439/t in September 2008 and DAP by 596% to R16 395/t in July 2008.

The slowdown in the international economy and lower product prices has resulted in a sharp decrease in international fertiliser prices. Farmers cut down on their fertiliser purchases, resulting in lower demand. International fertiliser prices decreased in line with the price of other commodities.

In January 2009, urea sold for US5/t (R3 568/t) and DAP for US3/t (R2 543/t) on international markets. Freight costs also decreased as the demand for freight space decreased. The Baltic Dry Index, an index of dry bulk freight tariffs, dropped from 11 500 points in mid-2008 to 650 in December 2008. It has since increased to 1 200 but is way below its former peak. South African urea sold for an average R5 444/t in February 2009 and monoammonium phosphate (MAP) for R6 632/t, down 42% and 51% on 2008 peak price levels.

Exchange rates also play a role in determining South African product prices. In rand terms, the international price of urea and DAP decreased by 36% and 61% respectively over the same period. While local prices followed international prices in the downward trend since 2008, this doesn’t mean local prices are fair. Phosphate is mined and processed by Foskor and was sold to local fertiliser manufacturers at what Profert described as very discriminating prices. While rough phosphate was sold at export parity prices, MAP and DAP were sold at import parity price plus a premium. Intervention by the Competition Commission resulted in a change to an export parity pricing basis by Foskor.

Farmers can rest assured the pricing policies of the fertiliser manufacturers are constantly scrutinised. In this regard, Grain SA’s economists play a major role and other industry organisations owe them gratitude for the job they do.

Officially, the National Agricultural Marketing Council (NAMC) also monitors input prices and is able to signal a red light if needed.

What should individual farmers do?

Oligopolistic companies like our fertiliser manufacturers try to limit competition through their branding actions. They try to convince farmers their products and services are better than others. Farmers mustn’t get taken in by clever advertising. Fertiliser company products are all similar. Shop around and only buy at the best price. Getting together with your neighbours to buy collectively helps.

It always pays farmers to buy fertiliser early in the season. Companies don’t want to end the financial year with large unsold stock.

As international prices are still in a downward trend, companies are afraid of being caught with stock bought at higher prices and now valued at lower ones. It’s a buyer’s market – use it to push prices down. Chemical fertilisers are not the only way to maintain and improve soil fertility. Farmers who adopt and apply biological farming methods save hugely on fertiliser costs and see an improvement in yield. And biological farming doesn’t mean the exclusion of chemical fertiliser, but the use of compost and manure as well.

The question no longer is whether a farmer should adopt biological farming methods, but rather if a farmer can afford not to do it. Various collective actions will ensure fertiliser companies don’t contravene competition laws. However, this doesn’t ensure individual farmers get fertiliser at fair prices. Their own actions will determine that.

Farmers should spend less time worrying about the fairness or unfairness of fertiliser prices and more time on negotiating better prices and limiting their dependence on bought-in fertiliser.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy.

Source: Farmers Weekly

The Upside to Peak Fertilizer

Thursday, Feb. 7, 2008 08:27 PST | Andrew Leonard, Salon

Synthetic fertilizer prices are spiking upwards all over the world, inflicting economic pain on farmers everywhere. Another sign of the peak oil apocalypse? The industrial production of nitrogen -- a key synthetic fertilizer ingredient -- is extraordinarily energy intensive. So when energy prices rise, so do fertilizer prices. And if you buy the thesis that without manmade fertilizer the world will be physically incapable of supporting a population of nine billion, then you start to get very nervous.

Opponents of biofuels have been quick to point the finger at the stampede to divert farming land to energy crops as another reason explaining the fertilizer market's failure to keep up with global demand. But that's only one factor. Population growth and the explosion of meat and dairy consumption in the rising middle classes of the developing world are also contributing to the worldwide agricultural boom. Even without rising energy prices, the surging demand for fertilizer would be overwhelming suppliers.

When demand rises, supply follows -- and sure enough, investment in synthetic fertilizer production is booming. Intriguingly, the global center for synthetic fertilizer production appears to be the oil states of the Mideast. A new study by the Doha-based Gulf Organization for Industrial Consulting reports that UAE, Saudi Arabia, Kuwait, Bahrain, Qatar and Oman are expected to invest billions of dollars in the next few years ramping up ammonia and urea production.

Which drops a big fat dollop of synthetic fertilizer irony in our laps. The growth of energy crops is in part directly attributable to rising energy prices. But the demand for synthetic fertilizer to nurture those energy crops requires the consumption of even more fossil fuel, thus likely pushing energy prices further, and creating even more demand for energy crops. On second thought, that's not ironic. That's tragic.

The price-mechanism doesn't only work in the direction of encouraging more synthetic fertilizer. One news report, while predicting that the current imbalance between supply and demand could last as long as two years before new supply came on line, observed that in the meantime farmers might be forced to "consider converting to organic production."

So you can forget about the endless argument over whether organic food is healthier for human consumption than the product of the industrial agricultural system. If synthetic fertilizer prices continue to rise, organic food may end up cheaper than the alternative.

Source: Salon

'The Saudi Arabia of fertilizer'
One big corpration dominates the soon-to-be-prized potash market

Tom Philpott, Grist | 15 May 2008

Industrial agriculture currently stands as humanity's big plan for "feeding the world" as global population moves toward 10 billion and the earth warms. Increasingly, as oil supplies tighten and prices rise, we're looking to industrial ag to fill our gas tanks, too.

Unhappily, this relatively new form of farming relies utterly on three elements -- two mined (potassium and phosphorus) and one synthesized from natural gas (nitrogen) -- to maintain the productivity of soil.

In other words, unless we quickly move toward other agriculture models, we're likely to see increased geopolitical competition for these fertilizer resources, outsized power for the entities that control them -- and diminishing efforts to minimize the ecological effects of extracting them.

I've written before about Mosaic, the world's largest phosphorus supplier, and the devastations of its Florida mining operations. Two-thirds owned by agribusiness conglomerate Cargill, Mosaic has seen its share price rise seven-fold since the fall of 2006 (roughly when corn prices began to jump).

Now let's look at Canada's Potash Corporation of Saskatchewan, whose shareholders, like Mosaic's, have enjoyed an ecstatic run of late. The company so dominates potash (potassium) production that one stock analyst has hailed it as "the Saudi Arabia of Fertilizer."

The analyst, Ben Johnson of Morningstar, has this to say about Potash's market position:

PCS is the world's largest potash producer, with 22% of world capacity. ... PCS is also the world's second-largest nitrogen producer by volume (with 2% of world capacity). ... PCS is the world's third-largest phosphate producer (with 6% of world capacity).

Wow, so in the big-three macronutrients, the company ranks one, two, and three. But it's the company's position in the potash market that really has investors licking their chops. Get this:

I feel [an] apt analogy would be to call [Potash Corporation of Saskatchewan] the Saudi Arabia of the "other OPEC" -- Organization of Potash Exporting Countries! ... PCS owns 22% of the world's potash production capacity, while Saudi Arabia accounts for roughly 13% of global oil production. Both enjoy low-cost positions in their particular markets, thanks to scale and the attractive natural resources they control. The Middle East has more than 60% of the world's proven oil reserves, while Canada sits on about 57% of the world's potash reserve base, according to the U.S. Geological Survey.

The analyst says that the company's dominant potash position has made it extraordinarily profitable as fertilizer prices have surged recently, pushed up by the biofuel boom and rising demand from Brazil and China. He writes that "gross profit per metric ton of potash sold nearly doubled to $97 in 2007 from $51 in 2004." He adds:

And there will be more to come. Given recent price announcements for potash, average selling prices will easily double from 2007 levels in the coming quarters.

Similar trends are playing out with nitrogen and phosphorous:

Unit gross profit in nitrogen has more than doubled from $45 to $94 over this same span, and phosphate unit margins have compounded an eye-popping 14 times from $4 in 2004 to $57 in 2007.

Several questions arise here. Is it really sustainable to "feed the world" -- much less move its cars -- using technologies that require ravenous doses of finite resources?

How long before big buyers in places like China start to balk at paying such elevated prices -- and supporting such monopoly-style profit margins? Already, we're seeing countries that are cash-rich and food-poor (think China and Saudi Arabia) buy up farmland in places like Brazil and Africa, the Financial Times reports.

Fertilizer, a critical input for industrial food, is darting down the unhappy path forged by crude oil. It looks set to become the globe's next "prize" -- to paraphrase Churchill's famous quote at the dawn of the oil age. Other ways of "feeding the world," of course, are possible.

Source: Grist