Reduced demand for fertilizer this fall has sparked concerns about 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 springtime when they do need it,” said Greg Marshall, vice-president of the Agricultural Producers Association of Saskatchewan (APAS).
If everyone waits until spring to buy fertilizer there will be tremendous demand and supplies could be short, Marshall said.
David MacKay, executive director of the Winnipegheadquar tered Canadian Association of Agri-Retailers (CAAR) agrees. As well, farmers who bought fertilizer haven’t picked it up, which is compounding the problem.
“We’d like to see farmers physically remove the product so our dealers have more storage capacity and we can begin to place more orders and have more product flow through the system so we’ll have a greater ability to meet future demand,” MacKay said. “The problem is no product is moving and it could potentially be backing up to (fertilizer) production. If we have a big demand spike in the spring the supply may not be able to meet the demand.”
Previous warnings about supply problems have rarely come to pass.
“I don’t think there’s a boycott (of fertilizer) going on,” MacKay said. “Farmers are just being shrewd. We get it. But there’s somewhat of a concern that if we hold this out too long there could be adverse repercussions to the growers as well.”
Ken Ball, a Winnipeg-based commodities broker with Union Securities Limited, said retailers typically sell fertilizer through the fall and winter, leaving only 30 to 40 per cent of the market to supply in the spring.
“This year they may have to sell to 70 per cent of the market and they won’t have enough inventory on hand to meet that demand and they could run out at times,” he said.
Agrium’s 2008 third-quarter earning report also forecasts delayed sales “placing that much more pressure on the distribution system next spring (2009).”
Falling fertilizer prices have started to generate sales in Western Canada, Ball said. In early December some clients purchased nitrogen fertilizer for as low as $520 a tonne.
“But of course as every day goes by with wheat pushing for $4 a bushel and canola pushing for who knows what, farmers’ ability to pay even the current fertilizer prices is diminishing,” he added.
The outlook for fertilizer prices began to weaken this fall as countries began to really feel the impact of the global economic
“Farmers are just being shrewd. We get it. But there’s somewhat of a concern that if we hold this out too long there could be adverse repercussions to the growers as well.”
– David MacKay
slowdown and as supply/demand expectations changed.
According to Statistics Canada’s Industrial Product Price Index, fertilizer prices in Canada increased 53 per cent during the first nine months of 2008.
MacKay said some retailers got caught holding fertilizer purchased when prices were much higher than now. They’re having to discount it to entice farmers to buy. It could knock some retailers out of business, he said.
Some might say “so what?” But losing a retailer can be hardship for the farmers who have to travel farther to get service or find there’s less competition for their business.
A report released in November by the International Fertilizer Industry Association (IFA), says due to depressed market conditions during the latter half of 2008, global fertilizer consumption in 2008-09 is tentatively forecast to decline 2.2 per cent to 165 million tonnes, down from 168.7 million in 2007-08.
Farmers’ and distributors’ ability to access credit will partially determine demand.
Because of rapid price fluctuations, farmers may also hesitate before jumping into the fertilizer 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 already affected fall fertilizer sales.
Many farmers will be less willing or less able to afford as much fertilizer because of reduced grain prices.
Low prices and the prospect of a “mammoth” carry-over may cause farmers to switch a record amount of acreage out of canola in favour of crops that require less fertilizer, which would also reduce demand.
“There is definitely an opportunity to cut their fertilizer usage by a substantial amount by trimming a huge number of canola acres out of their rotations,” Ball said. “I think they will do it. We need to drop canola acres probably by about 30 per cent and we have never done that before in all history.”
(With files from Allan Dawson, Manitoba Co-operator)