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A buyer’s market for urea?

Feeding 9 billion people by 2050 will call for higher yields, extraordinary technology, superior breeding efforts, skilled producers and fertilizer, probably lots of fertilizer.

How much nitrogen does it take to pull off 300 bushel corn yields? What’s the potash requirement for 4-bale cotton? Those are sobering thoughts given that prices for many nutrients have been skyrocketing lately.

But there may be some relief at hand for a nitrogen source. According to a report by Rabobank, structural changes in the global urea industry could lead to lower urea prices after 2015.

As with most inputs and commodities, it’s all about the law of supply and demand. As nitrogen prices have heated up, more people are getting into the business. Capacity is exploding.

What had been a seller’s market is becoming a buyer’s market.

The report, Bursting the Urea Bubble, authored by Rabobank’s Global Food & Agribusiness Research and Advisory, predicts that the global urea market will begin a shift to oversupply after 2015.

This is due to urea capacity expansion by key importers, the United States, Brazil and India and low-cost producers in the Middle East and Africa. Increased capacity will “ensure that supply growth significantly outpaces demand growth, shifting the market into a buyers’ market towards 2020.”

According to Rabobank, capacity expansion began in 2007, driven mainly by “the exploitation of shale gas in the United States, new gas fields in Brazil, political incentives in India and low-cost natural gas in the Middle East and Africa.”

Rabobank said over 65 new projects have been announced that will expand global urea capacity by 30 percent between now and 2020. “This rush of activity on the supply side will have a strong influence on the urea demand/supply picture in the coming five to ten years.”

The Rabobank report says importers of urea like the United States are becoming more self reliant. At the same time, capacity among low-cost exporters is increasing. “As this situation intensifies over the next few years, it will result in price pressure and capacity rationalization in high-cost regions.”

According to The Fertilizer Institute, the United States is the world’s third largest nitrogen producer with the capacity to produce 12.5 million tons of ammonia, which is used as a fertilizer, as a building block for other nitrogen products and for industrial uses.

The United States has also been a significant importer of nitrogen, in the form of anhydrous ammonia and urea.

Rabobank sees a “new reality in the urea industry. Urea producers will need to achieve low costs of production or locate closer to their markets, enabling them to quickly respond to demand dynamics by altering production cycles.”

The shift to a buyer’s market may provide some relief to commodity producers over the second half of this decade, at least as far as nitrogen is concerned.If it happens, it just goes to show, whether it’s corn, cotton or nitrogen, the cure for high prices is high prices.

TAGS: Corn
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