A year ago, concerns over world food shortages were headline news and little has changed to alleviate the pressure on food supply. The world's population continues to grow. Economies in countries like China and India, although not as robust, keep expanding giving their people more money to spend on food. At the same time, global grain inventories remain historically tight.
This was brought to the forefront again earlier this week as G8 officials called for increasing public and private investment in agriculture citing growing concerns over the global food supply. A dangerous game is now unfolding around the world. Fertilizer applications are being reduced at unprecedented levels, with our estimates for North American potash applications falling as much as 30% to 35%, phosphate by 20% to 25% and nitrogen by 5% to 10%.
To put this in context, U.S. applications this fertilizer year are expected to be similar in total volume to the 1983 pick year while farmers now need to generate 90% more production than in 1983 and will plant 25 million additional acres of corn, the most fertilizer intensive crop in the U.S. Clearly, nutrient replenishment will suffer.
This level of reduction has never been seen before. No one can state precisely what the impact will be on the world's food supply immediately or over the longer term, but we know with scientific certainty that nutrient under application damages both crop yields and quality.
Farmers in the southern hemisphere reduced their potash applications for the current crop just now being harvested and the timing could not have been worse. Potash is a quality nutrient. It improves the taste and nutritional value of food. It enhances water retention, raises yields and helps plants fight disease and drought.
With less than ideal growing conditions this season, those farmers in Argentina and Brazil are now experiencing a substantial decline in yields. We would not be surprised to see farmers in other major producing regions having similar declines this year. After two record world crops in 2007 and 2008, the year 2009 could be a completely different story.
The most valuable part of a farm is the quality of its soil and large amounts of nutrients are mined from the soil with every harvest. Every time farmers grow a crop without replacing the nutrients, it's like borrowing money with no repayment plan, and there is no magical bail out for lost fertility in the soil bank.
We believe farmers' decisions to cut back applications are not being made out of fiscal necessity as tight grain fundamentals continue to support crop commodity prices; farmer returns are well above historical averages. The reduction in fertilizer applications is more about psychology than economics and the sudden slow down in volumes is forcing producers to make some tough decisions about production and price.
Thursday, April 23, 2009
This Should get your Attention
The following is from the quarterly earnings release transcript of Potash of Saskatchewan, Inc. (POT - NYSE), the world's largest fertilizer company (entire article here).
If you think "economic issues" are a problem... money pales in comparison to food. The government can "issue" more money. They cannot issue food.
It is far more likely that food shortages would affect the American people indirectly, in the form of civil unrest in third world trading partners, than directly in the form of domestic food shortages - though nothing is impossible.
Americans have no idea of just how dependent we are on fertilizers. Our dependency on Oil is not even close.
Yours for a better world,
Mentatt (at) yahoo (d0t) com
Posted by The Short Story Man at 7:59 PM