December 9, 2008
Reduced demand in Canada for fertiliser this fall has sparked concerns about supply shortages in 2009.
"Farmers are trying to wait as long as they can to see if prices will keep coming down and yet on the other side of the coin, there is the concern about whether or not the supply will be there in the spring time when they do need it," said Greg Marshall, Saskatchewan producer and vice president of the Agricultural Producers Association of Saskatchewan.
If everyone waits until spring to buy fertiliser, there will be tremendous demand in Canada and supplies may be short, Marshall said.
Ken Ball, a Winnipeg-based commodities broker with Union Securities Limited, said input retailers typically sell fertiliser through the fall and winter, leaving only 30 percent to 40 percent of the market to supply in the springtime.
"This year they may have to sell to 70 percent of the market and they won't have enough inventory on hand to meet that demand and they could run out at times," said Ball.
However, falling fertiliser prices have started to generate sales in western Canada, according to Ball, who said clients of his purchased nitrogen fertiliser for as low as C$520.00 a tonne last week.
"But of course as everyday goes by with wheat pushing for C$4.00 a bushel and canola pushing for who knows what, farmers' ability to pay even the current fertiliser prices is diminishing," he added.
The outlook for fertiliser prices began to weaken this fall as countries began to really feel the impact of the global economic slowdown and as supply/demand expectations changed.
This has convinced many western Canadian farmers to refrain from buying in case prices fall further off the record levels reached this summer.
According to Statistics Canada's Industrial Product Price Index, fertiliser prices in Canada increased 53 percent during the first nine months of 2008.
A report released in November by the International Fertiliser Industry Association said due to depressed market conditions during the latter half of 2008, global fertiliser consumption in 2008-09 is tentatively forecast to decline 2.2 percent to 165.0 million tonnes, down from 168.7 million tonnes in 2007-08.
For calendar year 2009, the IFA said, "After a likely depressed first half of 2009, demand could possibly recover during the second half of the year."
Farmers' and distributors' ability to access credit will partially determine demand moving forward.
Because of rapid price fluctuations, farmers may also hesitate before jumping into the fertiliser market. Many may prefer to wait for a more stable environment.
Tied to this is the fact that buyers are reluctant to buy if they believe values are still falling, which Ball and Marshall believe has already impacted fall fertiliser demand in Canada.
Also, with grain and oilseed prices having fallen off dramatically in the 2008-09 (August-July) growing season, many producers will be less willing or unable to afford as much fertiliser.
In Canada, low prices and the prospect of a "mammoth" carryover may cause farmers to switch a record amount of acreage out of canola in favour of crops that require less fertiliser, which would also scale-back demand.
"There is definitely an opportunity to cut their fertiliser usage by a substantial amount by trimming a huge number of canola acres out of their rotations. I think they will do it. We need to drop canola acres probably by about 30 percent and we have never done that before in all history," Ball said.