How Will the Potential Record Corn Crop Affect Fertilizer Pricing?

The USDA is currently leaning towards predicting a record corn crop in the United States. This has led to a decline in corn pricing, and as we know corn pricing typically has an effect on the price of fertilizer. However fertilizer pricing is also below recent years pricing, especially with regard to potash after last year’s breakup of the Russian/Belarussian cartel of BPC. These lower prices obviously mean that it is less expensive to increase crop yield through fertilization.
Corn ExportsThe United States is a large producer of corn, however it consumes the majority of this production domestically. The exports of corn only amount to about 15 percent of the US corn demand. Despite this low number, the US corn market effectively sets the price of corn in the world market. So it would be expected that low corn pricing would prevail in the world market. The first figure shows the world’s leading exporters of corn.

Corn ImportsOf course to fully understand how this effects corn, it is also necessary to look at the other side of this market, namely corn imports. The following figure depicts were that corn is being imported. From this figure we see that historically developing countries, the Middle East and North Africa account for well over 50 percent of the corn imported in the world.

Chinese UrbanizationWhy is this? Certainly the amount of agricultural products they produce is part of this, as well as growing populations in these areas. An increase in population obviously requires that more food must be produced to feed these populations. But a portion of this increase is also likely due to improving diets and increasing urbanization. Increasing urbanization is reducing people’s dependence on a lifestyle based upon agriculture and moving them to urban areas where they are often increasing their standard of living through an increase in disposable income. In examining the world’s most populous nation, China, we can see that urbanized populations have increased dramatically over the last 40 years in China. This in part has led to income growth of over 130 percent in the last ten years in China. Increasing incomes means that people can afford better diets, diets often containing more protein. An increase in the amount of protein consumed obviously means that the production of protein must increase. This of course also means that there must be an increase in the food fed to this livestock, typically coarse grains. Low corn prices mean that corn would be an obvious choice for this livestock feed. And what is the best cure for low prices? The best cure for low prices is in fact low prices. A low price tends to increase demand which in turn causes an increase in prices. Additionally as diets improve, historically these changes take a lasting hold on populations which as pricing increases should lead to overall more profitability for the producers.

Urbanization also has another effect. That is that fewer people are growing food for their own consumption which means that others must produce this food. And if fewer people are required to grow more food they are seeking ways to improve the yield. One of the most proven ways to increase yield is through proper fertilization.

So while downward pressure on corn pricing may not be an immediate positive for fertilizer use, over the longer term low prices should increase, based on demand, improving diets, increasing urbanization, and the search for increasing yields.

If you would like to discuss this, a fertilizer project, or another mining project please feel free to contact Schlumpberger Inc.

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