(DTN) The overwhelming message at the 2010 Fertilizer Outlook and Technology Conference held in Savannah, Ga., last week was fertilizer demand by farmers in 2011 is expected to return to more normal levels after being low for several years.

But as demand increases, the industry has needed to deal with low inventories and slow delivery of supplies this fall.

Tom Blue of Blue, Johnson and Associates, said he expects U.S. fertilizer demand to rebound in 2011. His company estimates that farmers will use 12.9 million short tons of nitrogen in fiscal year 2011.

This is up from their 2010 estimate of 11.8 million short tons and 2009 estimate of 10.8 million short tons. This puts 2011 in line with 2007 and 2008, when farmers used 12.8 million and 12.3 million short tons.

"We do expect, after cutting nitrogen fertilizer usage the last couple of years, farmers will return to a more average application," Blue said.

Meanwhile, nitrogen prices rose because of higher commodity prices. Major suppliers of nitrogen appear to stick with the strategy to supply or take orders for only one or two months at a given price, which seems more prevalent than in past marketing plans, said Blue.

"So, in a scenario where crop prices, especially corn, keep ramping up, suppliers will have not oversold at current prices," he said. "Or, if crop prices seriously retreat for some reason, suppliers have the option to drop prices so as to continue to move product. Lessons were actually learned in 2007, 2008 and 2009."

Blue said in absolute terms, there is no domestic or international shortage of any type of fertilizer. The issue is supply at what price: Is it or will it be in the right place at the right time?

TIGHT PHOSPHORUS MARKET

The global phosphate rock market is expected to be "tight to balanced" in 2011, according to Kelly Davey, manager of market research for Potash Corp. located in Saskatoon, Saskatchewan.

"Morocco phosphate rock prices remain above historical levels," Davey said. Limited new phosphoric acid capacity makes her believe the phosphoric acid market will be relatively tight through at least 2013.

The U.S. expects to see domestic diammonium phosphate (DAP) and mono-ammonium phosphate (MAP) sales rebound in 2010 and strengthen in 2011, she said. U.S. usage in 2007 was 14.5 million short tons, with a drop to 11.7 million short tons in 2008. She expects 2011 demand to return to 2007 levels.

U.S. producers' DAP and MAP ending inventories are currently near record-low levels. According to Davey, the five-year average for both is about 1 million short tons. In 2008, U.S. producers had 1.4 million short tons in reserve; in 2009, that dropped to about 900,000 short tons. This year was even lower at 650,000 short tons.

These extremely low inventory numbers, plus strong demand, led prices for phosphorus products like DAP to jump during the past two years. In January 2009, the Tampa DAP price was $340 per metric tons. By October 2010, the price had jumped to just under $575/mt.

POTASH DEMAND SEES SHARP REBOUND

The near-term outlook for potash is for a sharp rebound in demand, according to Mike Rahm with The Mosaic Company. After an unprecedented drop in 2009, potash demand should get back to typical growth, he said.

"I think we will see farmers apply more normal rates," Rahm said. "In fact, we believe they will even increase potash rates in 2011 to make up for the last couple of years."

With the sharp rebound in demand, Rahm said North American producer inventories have been pulled down. Producer stocks have dropped from 4 million tons at the beginning of the 2009-2010 fertilizer year, which starts in July, to 2.5 million tons at the beginning of the 2010-2011 fertilizer year, to 1.5 million tons currently.

The "perfect storm" fall application season in North America did not help during a time of low potash inventory. Rahm estimated about half of the potash product, about 5 million tons, was moved in the July-December 2010 timeframe for fall application. The five-year average has been about 4 million tons.

"Anyone in the potash business has heard from customers not pleased about slow supply," he said.

Global shipments are set to return to pre-2009 levels in 2010 and 2011. Rahm forecasted shipments at 48 million to 49 million tons in 2010 and at 52 million to 55 million tons in 2011. In 2009, potash shipments fell dramatically, to only about 32 million tons.

Daniel Davidson, DTN agronomist, said most farmers view potash application as the most discretionary.

"When the crop comes out late and fertilizer prices spike, growers know they can forgo potash for a year and do just fine. Crops are more efficient at extracting potassium and soils provide more potash buffering (availability)," Davidson said.

"So, in a late fall when dry fertilizer doesn't get applied, or when fertilizer prices spike or crop prices plummet, growers know they can cut back or eliminate their potash application for a season," said Davidson. He added that farmers' crops would not suffer yield loss, as long as they apply potash next season.

High potash prices destroy demand, and farmers need to find the magic price point for potash to decide whether or not to invest in it for their fields.

"I don't know what that point is," Rahm said. "I think it all comes down to farm economics for farmers."

http://www.dtnprogressivefarmer.com/