Following the release of the USDA’s Report on June 28, which suggested that American farmers had just completed planting the largest corn crop since 1936, I was speaking with an associate in the fertilizer business who was talking about the opportunities to tuck away urea and UAN solution for next spring because there was unused product in the pipeline left over from 2013 planting. If we planted 100 million acres of corn in North America in the past two months, how could we possibly have nitrogen left over?
There are really only three logical possibilities that might explain this. The first is that the crop size is simply not as big as has been reported. This isn’t even speculation, but rather a statement of fact. The real dialogue of the past week is not about if the USDA is wrong but rather by how much are they off the mark. The survey dates used to collect the data on planted acreages took place while people were still in the field. In a normal spring, such a survey would come at the end of seeding and the results would be pretty accurate, but with 2013’s delayed planting season, the questions were being asked while farmers were still speculating about how many more acres they thought they could get in. 2013 is still going to be the largest corn crop in history (so don’t pull on your rally hats), but it might not turn out to be quite as monumentally massive as some of the reports might lead one to believe.
A second possibility is that for some reason, fertilizer application rates have been reduced. Back in 2009, when urea was over $800 per tonne and corn was less than $3.65/bu, I could see producers holding back a little on the crop inputs, but with the exception of a few fields that are too wet to side dress, it’s unlikely that very many producers where operating under an austerity program this spring.
The third possibility is that the gains in fertilizer production capacity have outrun the increase in corn acreage, and the fertilizer industry simply over-produced beyond the volume of demand. In February, urea was US$465 per metric tonne in New Orleans, and by July that value has dropped to US$347 per metric tonne. You might wonder how the price of fertilizer could drop 25% through the peak demand period, but worldwide production capacity for urea rose 19% in 2012, from 201.1 million metric tonnes to 242.7 mmt. Improvements in nitrogen production are simply outrunning the increase in nitrogen demand.
A key storyline in agriculture through 2013 has been the significant increase in the number of acres being committed to corn production, but in spite of the increase in corn acres, the total area of American farmland planted in 2013 dropped 940,000 acres (to 323.338 million in 2013 from 324.278 million in 2012).
A weakening Canadian dollar has potential to push fertilizer values higher for the spring of 2014 but the fundamentals of supply and demand do not.