Fertilizer Manufacturers Face an Uphill Battle

We continue to see further evidence of weak fertilizer demand, particularly for phosphates and potash products. Potash inventories for North American producers were recorded at 56% above their 5-year average in March. DAP inventory levels (diammonium phosphate)are also running nearly 30% above their 5-year average. These are indeed formidable surplus levels to work through in any market.

Increasing phosphate and potash inventories should come as no surprise to those following the standoff between farmers and nutrient dealers dating back to last fall. These latest inventory readings suggest that high-priced product is still not moving through dealer pipelines as retail price cuts have failed to match the proportional drop in grain prices. The supply increases are even more disturbing when we consider that producers have already substantially cut operating rates in recent months in anticipation of weak demand.

Weather delays to planting progress now have the potential to reduce marginal demand even further. The longer that we see cold and wet conditions persist in the northern regions of the grain belt, the greater the probability that growers will switch corn acres to soybeans or spring wheat. While corn acreage is expected to be flat year-over-year, spring wheat acreage intentions are down 6% from 2008 plantings.

Most growers’ crop insurance policies have locked in a soybeans:corn ratio near 2.2, which historically has favored planting more beans. Since the USDA’s Prospective Plantings report on March 31^st, the SX:CZ ratio has actually increased by 11%. The market is telling us that corn is failing to “bid” for more acres this spring – a bearish sign indeed for marginal fertilizer demand.

Implications: as we have noted in previous studies, corn acres typically consume roughly 5.6 times more fertilizer than soybeans (measured by pounds/acre, combined nitrogen + phosphate + potash). Wheat in turn consumes roughly 2.2 times as much fertilizer as soybeans. Therefore a shift to more soybeans at corn’s and spring wheat’s expense will further erode marginal consumption this season.

We will have a clearer picture of actual acres planted by June. Until then, the trade will closely monitor the weather conditions to anticipate where planted acres will cross the finish line.

Disclosure: No positions

Comments

[Mad Hedge F...:]

Not for the long term. Pack your portfolios with agricultural plays like Potash (POT), Mosaic (MOS), and Agrium (AGU) if Dr. Paul Ehrlich is just partially right about the impending collapse in the world’s food supply. You might even throw in long positions in wheat, corn, soybeans, and rice. The never dull, and often controversial Stanford biology professor told me he expects that global warming is leading to significant changes in world weather patterns that will cause droughts in some of the largest food producing areas, causing massive famines. Food prices will skyrocket, and billions could die. At greatest risk are the big rice producing area in South Asia, which depend on glacial run off from the Himalayas. If the glaciers melt, this will be gone. California faces a similar problem if the Sierra snowpack disappears. Rising sea levels displacing 500 million people in low lying coastal areas is another big problem. One of the 77 year old professor’s early books “The Population Bomb” was required reading for me in college in 1970, and I used to drive up from Los Angeles to hear his lectures (followed by the obligatory side trip to the Haight-Ashbury). Other big risks to the economy are the threat of a third world nuclear war caused by population pressures, and global plagues facilitated by a widespread growth of intercontinental transportation and globalization. And I won’t get into the threat of a giant solar flare frying our electrical grid. “Super consumption” in the US needs to be reined in, where the population is growing the fastest. If the world adopts an American standard of living, we need four more Earths to supply the needed natural resources. We need to raise the price of all forms of carbon, preferably through taxes, but cap and trade will work too. Population control is the answer to all of these problems, which is best achieved by giving women an education, jobs, and rights, and has already worked well in Europe and Japan. All sobering food for thought.

Apr 17 11:36 AM

[Jordan Rizzuto:]

Mad Hedge Fund Trader,

If you are interested in macro-level climate scenarios, here is an article on the current solar cycle that our science center recently published:
www.stormx.com/agricul.../


On Apr 17 11:36 AM Mad Hedge Fund Trader wrote:

> Not for the long term. Pack your portfolios with agricultural plays
> like Potash (seekingalpha.com/symbo...), Mosaic (seekingalpha.com/symbo...),
> and Agrium (seekingalpha.com/symbo...) if Dr. Paul Ehrlich
> is just partially right about the impending collapse in the world’s
> food supply. You might even throw in long positions in wheat, corn,
> soybeans, and rice. The never dull, and often controversial Stanford
> biology professor told me he expects that global warming is leading
> to significant changes in world weather patterns that will cause
> droughts in some of the largest food producing areas, causing massive
> famines. Food prices will skyrocket, and billions could die. At greatest
> risk are the big rice producing area in South Asia, which depend
> on glacial run off from the Himalayas. If the glaciers melt, this
> will be gone. California faces a similar problem if the Sierra snowpack
> disappears. Rising sea levels displacing 500 million people in low
> lying coastal areas is another big problem. One of the 77 year old
> professor’s early books “The Population Bomb” was required reading
> for me in college in 1970, and I used to drive up from Los Angeles
> to hear his lectures (followed by the obligatory side trip to the
> Haight-Ashbury). Other big risks to the economy are the threat of
> a third world nuclear war caused by population pressures, and global
> plagues facilitated by a widespread growth of intercontinental transportation
> and globalization. And I won’t get into the threat of a giant solar
> flare frying our electrical grid. “Super consumption” in the US needs
> to be reined in, where the population is growing the fastest. If
> the world adopts an American standard of living, we need four more
> Earths to supply the needed natural resources. We need to raise the
> price of all forms of carbon, preferably through taxes, but cap and
> trade will work too. Population control is the answer to all of these
> problems, which is best achieved by giving women an education, jobs,
> and rights, and has already worked well in Europe and Japan. All
> sobering food for thought.

Apr 17 01:36 PM

[john redmond:]

I think that the bulk of man's problems can be traced to over population and his doing nothing about it. Instead he concentrates on the results and not the root causes of his situations.

Apr 17 03:55 PM

[kertch:]

Dear Mad Hedge Fund Trader,

Dr. Erlich has been predicting gloom and doom for over 30 years and he has been wrong for just as many. If you want to recommend Ag plays perhaps you should do so on the basis of sound fundamentals rather than Pseudo-scientific apocolyptic babble.

Apr 17 04:46 PM

[basehitz:]

To Mad Hedge Fund Trader,
Was that a serious post? Global warming (Al Gore style) leading to rising sea levels flooding out vast acreage. I suspect you're serious. I'll take this as food for intellectual thought. I've read your blog and you don't sound like a loon.

What is more disturbing is when our politicians take this highly controversial issue, which many, many experts refute with very credible evidence, and pass laws which will cripple our industry with added costs before the scientific debate is properly resolved. And since China and India will not comply, we will be at a competitive disadvantage. I read this weekend about coming EPA changes. After we do the financial damage to ourselves, how do we undo it if we later confirm the skeptics were right? I don't think you can unring that bell. We are going in a very dangerous direction.

Apr 18 10:02 AM

[basehitz:]

One more thought. Just as many don't realize global warming is still being debated in the scientific community (cause the liberal media won't tell them), if after they prove it's wrong many will then complain it is some right-wing conspiracy and the biased liberal media will feed that propaganda as well.

Apr 18 10:05 AM

[auto44:]

Fertlizer is pretty useless without water. The fall before last I drove from my home in upstate New York to Alaska and back. I was gone eight weeks and drove fourteen thousand miles. It was very appearant almost every where that we are loosing our glaciers and snow packs that provide most of our country and Canada with water during dry spells as the ice and snow melt. I saw huge reservoirs that looked like mud puddles and you could see where water level had been a different times, I am talking hundreds of feet deep recently man made dams.

I don't know what cause glaciers to receed, I do know that it has been going back and forth for tens orf tousands if not millions of years. I also know that at one time conventional wisdom had the world flat and at other times they had the world as the center of the universe. I doubt that the Al Gores of the world and the other bright and wise,ahem, politicians have it right this time either. If you are buying into conventional wisdom on the global warming issue I suggest that you at least do some research into alternative explanations. What ever the reason water and the companies that build out water resourses may be the next gold, gold that we cannot live without.

Apr 18 12:15 PM

[nmelendez:]

I agree with auto44, water is the next commodity bubble. 20 years ago i thought how stupid to buy bottled water when i can drink it from the faucet. I no longer drink water from the faucet...i recieved the reports of the water contaminants from faucet water. Not too healthy.

Apr 18 05:23 PM

[grh1212:]

Over 1500 meteorological experts of the IPCC say that man is at least adding if not the main reason for global warming. The few scientists who argue otherwise are in the pocket of the oil companies. As far as the liberal bias of the media is concerned, the scandal is that on news shows the overwhelming conclusion of the IPCC scientists is paired against the opinion of 7 biased scientists and the reporter sounds off with "what are we to think? !500 say A but three say B. It's such an even split of opinion. Only Solomon could decide"


On Apr 18 10:05 AM basehitz wrote:

> One more thought. Just as many don't realize global warming is still
> being debated in the scientific community (cause the liberal media
> won't tell them), if after they prove it's wrong many will then complain
> it is some right-wing conspiracy and the biased liberal media will
> feed that propaganda as well.

Apr 18 05:48 PM

[sliman:]

Agrium is featured in this weeks Barrons. Way undervalued.

Apr 18 09:58 PM

[ArtfulDodger:]

Mad Trader:

Surely you're not quoting that quack, Snerlich, and being serious about it?

Note that in 1968, Paul Ehrlich, Al Snore's mentor, in his book, “The Population Bomb,” predicted there would soon be a major food shortage in the U.S. and that "in the 1970s ... hundreds of millions of people are going to starve to death." Ehrlich forecasted that 65 million Americans would die of starvation between 1980 and 1989, and by 1999 the U.S. population would have declined to 22.6 million.

Ehrlich had a real cheery outlook for England back in the `60s: "If I were a gambler,” he said, “I would take even money that England will not exist in the year 2000." This was all supposed to be brought about by “over population” and a “nuclear freeze.”

Today, Ehrlich is a Warmer—and is out and about (when the weather is hot enough; the Warmers hide all winter nowadays due to the coldness) predicting a similar outcome for the world as he did in the `60s.

Hippies and kooks of all types fell for this craziness, as they have his predictions regarding “global warming”—none of which has come close to coming true.

People who are today adamant about “Global Warming” (now called "Climate Change" because of the recent cold winters and because none of the Warmers' predictions have come true) were also adamant about other predicted catastrophes that never came about, and about which they do not mention today, such as the Y2K-con, over-population, global freezing, nuclear winters, acid rain poisoning, vanishing wildlife, killer bee onslaughts, tree shortages, water shortages, oil depletions, energy shortages, worldwide poverty, C02 poisonings, flooding of whole land masses, famines on a worldwide scale, earthquakes causing huge pieces of land to fall into the ocean, nuclear war, nuclear power plant meltdowns killing billions and envenoming whole continents, ozone depletion brought about by a “greenhouse effect,” dying coral reefs causing the deaths of all ocean life, disappearance of most oceanic fish caused by too many humans having to eat to survive, oil pipelines causing animal extinction, and every other prophesied calamity that has never come about.

I remember well all the above mentioned and predicted catastrophes, and the same type of people are falling for the most recent predictions that fell for all of those: kooks and cynics who can't reason and politicians who used them to gain more power for themselves through legislation.

If Al Snore and Snerlich were stock pickers not one of you would pay their touts any attention due to their horrible past records.

Apr 19 01:37 AM

[ArtfulDodger:]

grh1212:

You are wrong about the IPCC report.

In part:
"The truth is very different. Most of the media articles you will see refer to reports issued by the IPCC. The IPCC is the Intergovernmental Panel on Climate change, a political body appointed by the UN. Many of the 3,000 members of this panel are not scientists, but simply political appointees. The few real scientists on the panel have disputed the panel's findings but have been silenced by having their comments deleted from the reports.

Several of these scientists have asked to have their names removed from the IPCC report, but have had their requests denied. Several have actually sued the panel to have their names removed, but few have been successful.

The actual fact regarding consensus on this issue is that there are many more scientists who dispute the claims regarding global warming than there are who support them."
See here:
www.firecongress.org/a...

On Apr 18 05:48 PM grh1212 wrote:

> Over 1500 meteorological experts of the IPCC say that man is at least
> adding if not the main reason for global warming. The few scientists
> who argue otherwise are in the pocket of the oil companies. As far
> as the liberal bias of the media is concerned, the scandal is that
> on news shows the overwhelming conclusion of the IPCC scientists
> is paired against the opinion of 7 biased scientists and the reporter
> sounds off with "what are we to think? !500 say A but three say B.
> It's such an even split of opinion. Only Solomon could decide"<br/>

Apr 19 01:42 AM

[yank:]

Good points. And believe it or not there are reports that an Arctic expedition to measure the ice shelf ran into a problem. All of their calibration and testing equipment FROZE. I kid you not. And of course every attempt was made by the left-wing media to either squelch the story or distort and twist it to suit their agenda. We call know how godd they are at doing that. Global warming? What a joke.


On Apr 19 01:42 AM ArtfulDodger wrote:

> grh1212:
>
> You are wrong about the IPCC report.
>
> In part:
> "The truth is very different. Most of the media articles you will
> see refer to reports issued by the IPCC. The IPCC is the Intergovernmental
> Panel on Climate change, a political body appointed by the UN. Many
> of the 3,000 members of this panel are not scientists, but simply
> political appointees. The few real scientists on the panel have disputed
> the panel's findings but have been silenced by having their comments
> deleted from the reports.
>
> Several of these scientists have asked to have their names removed
> from the IPCC report, but have had their requests denied. Several
> have actually sued the panel to have their names removed, but few
> have been successful.
>
> The actual fact regarding consensus on this issue is that there are
> many more scientists who dispute the claims regarding global warming
> than there are who support them."
> See here:
> www.firecongress.org/a...
>
>
> On Apr 18 05:48 PM grh1212 wrote:

Apr 20 01:43 PM

[ArtfulDodger:]

Friends and fellow-commentators, here's a new site to keep up with the truth about the global warming hoax.

climatedepot.com/

Apr 20 02:42 PM