Soybeans' Price Gains Are Fertilizers' Loss

The move in the soybeans:corn price ratio since March 31^st continues to favor bean acres at corn’s expense. Consider the chart below, which illustrates this ratio since the USDA’s planting intentions report on March 31^st:

This ratio provides clues to anticipating the marginal demand for fertilizer in the near term. For 2009 let’s assume a trendline yield of 156 bushels/acre for corn and 42 bushels/acre for soybeans. Using the 4/21/09 closing prices for the SX and CZ contracts, we see that the projected marginal revenue for growing corn has decreased 7.4% while marginal revenue for soybeans has increased 4.4% since March 31^st.

Given that corn acres typically consume roughly 5.6 times more fertilizer than soybeans (measured by pounds/acre, combined nitrogen + phosphate + potash), it is rather unlikely that growers will choose to grow the more costly corn while its revenue potential is steadily eroding.

Add this to the growing list of hurdles for fertilizer consumption (overstocked inventories, high retail prices relative to softer grain prices, potential weather delays to planting in key growing areas) and you have a rather cloudy outlook for fertilizer consumption in the coming months.

Disclosure: No positions

Comments

[nova:]

Thanks for sharing the statistics with readers.

Apr 23 09:15 AM

[Alan Young:]

A perfect article: succinct, to the point, and immediately relevant to trades.

Apr 23 10:20 AM

[T. Marc Sch...:]

Great article. It nice to read one that is so to the point, like others said. It will be interesting to see what farmers do with their fertilizer on beans. There's the huge myth that farmers don't put on as much fertilizer on beans as they should. Will this hurt yields on corn the following year because this year’s beans took too many nutrients? Who knows. This blog talks about these same topics too. farmlandforecast.colvi.../

Apr 23 12:50 PM

[the humble ...:]

Good article. It seems however that the next move on fertilizer stocks should come from consolidation or (M&A) rather than from an increase in consumption. Judging from the following article their are plenty of buyers interested in this lucrative market.
theaustralian.news.com...]

Apr 23 01:26 PM

[soxwhite:]

You should make readers aware that while beans do not use as much total fertz.as corn,beans require significant amounts of phosphate,lesser potash and no nitrogen.This could be bullish for some fertilizer producers.

Apr 23 05:50 PM

[Jordan Rizzuto:]

soxwhite,

While soybeans do require phosphate to boost yield, corn still consumes far more per acre than beans do.

If you run through the NASS database (from USDA's website) and access historical fertilizer consumption and historical acres planted for each crop, you will see that over the last ten years corn has consumed 3.6 times as much phosphate (tons/acre) as soybeans in the U.S.

While this ratio may vary depending on geography, soil types and farming practices, investors should be cognizant that more soybeans planted at corn's expense will depress marginal demand for crop nutrients. This dynamic will naturally affect the manufacturers' top line results differently depending on their distribution share between nitrogen, phosphate and potash.


On Apr 23 05:50 PM soxwhite wrote:

> You should make readers aware that while beans do not use as much
> total fertz.as corn,beans require significant amounts of phosphate,lesser
> potash and no nitrogen.This could be bullish for some fertilizer
> producers.

Apr 24 10:16 AM