Understanding global agriculture a must

Planting decisions in 2009 in the Southeast will likely be made later than at any time in recent history. Continued price volatility in virtually every crop input, combined with equally uncertain prices for commodities, makes advanced planning a risk enhancer, not a risk reducer as has historically been the case.

Keeping an understanding eye on what is happening worldwide, both on inputs and crop prices can give U.S. growers some insights on planning for their 2009 crop and future crops.

Soybean growers, for example, can take a look at Brazil's 2008 crop. Being in the Southern Hemisphere the Brazilians plant in the fall, giving U.S. growers a head start on what is coming up for the U.S.

So far, worldwide soybean prices have remained good, likely in response to global soybean stocks remaining relatively low. There has been no significant upward shift in soybean prices to inspire Brazilian growers to increase acreage.

Recent dramatic reduction in fertilizer costs and smaller reductions in diesel fuel didn't occur until after the Brazilian crop was planted. U.S. growers may be able to take advantage of stable, if not reduced soybean stocks to count on continued high prices for beans.

Fertilizer costs have fluctuated wildly since a record high in the summer of 2008. Nitrogen, phosphate and sulfur prices have dropped to varying degrees in the fall of 2008, and even leaders of the fertilizer industry seem baffled as to how long the free fall will last or where it will end.

China has emerged as a world power and world indicator in agriculture. In 2007, the Chinese virtually got out of the nitrogen export business, creating a near-instant shortage in nitrogen fertilizer.

China has recently made a move to help farmers consolidate land to increase the size of Chinese farms, making them more competitive with western farming operations. If this change in strategy creates a return to the nitrogen export market, this would signal an increase in supply and reduction in cost that could significantly impact the decision by U.S. farmers to plant more fertilizer-intensive crops like corn and wheat.

Despite the demand worldwide for more corn and for level production of wheat and soybeans, fertilizer experts believe usage will be flat, or possibly down slightly in 2009. Though not publicly discussing prices, most agree that less usage will mean more supply and lower prices.

Speaking at the recent National Fertilizer Institute's Fertilizer Industry Round Table (FIRT), Doug Stone, a marketing manager for Terra Industries, says he expects nitrogen use in the U.S. to be up slightly, maybe 0.5 percent over 2008 levels. Price, he says, will be significantly affected by how well suppliers are able to liquidate supplies bought at last summer's prices.

Jeff Holzman, with Potash Corporation, says potash use will likely be down in the fall and up slightly in the spring, again in response to suppliers liquidating high cost inventory.

Andy Jung, with CRU International, says phosphate use will likely be down 1 percent to 2 percent in 2009. Jung agrees that price will be directly affected by how well suppliers are able to liquidate high cost inventory.

Worldwide fertilizer use will have both short-term and long-term affects on how many acres of which crop farmers plant in the Southeast. Even moderate jumps in what seem to be insignificant markets, like Africa, can have an impact on both input costs and the price of commodities.

The entire continent of Africa uses only three percent of the world's fertilizer supply annually. By comparison the U.S. and Canada use 14 percent and Asia uses 57 percent. In most African countries soil fertility is going down, despite worldwide efforts to reverse that trend.

While Africa may look like a non-player in global agriculture, it should be remembered that the entire continent is over 75 percent rural, and it's huge — big enough for China, India, the United States and Western Europe to fit inside its borders.

Even small increases in soil productivity and application of modern technology could produce rapid spikes in production in corn, cotton, peanuts and other crops indigenous to the continent.

The biggest hurdle may be money and groups like Alliance for a Green Revolution in Africa (AGRA), led by Warren Buffet and Bill Gates promise to pump capital into the most productive agricultural countries within the continent.

Africa currently produces more than 65 percent of the world's phosphate supply. Deep water ports on both the Atlantic and Indian oceans and virtually unlimited opportunities for internal transportation systems provide enormous potential for agricultural development in Africa, both in terms of crop production and supplying fertilizer for the world.

If China continues to follow a policy of using their agricultural inputs, primarily fertilizer, for internal use and for using most of their commodities to feed and cloth their population, the Chinese could be a neutral factor in global agriculture production.

India is already being touted as the next China. There is little doubt the Indian government recognizes the tremendous economic potential of the agriculture industry there. Case in point, government support for fertilizer in India jumped from $10.34 billion in 2007 to over $24 billion in 2008, creating huge crop input imbalances in the region.

For example, urea cost five times as much in Pakistan as in neighboring India. In some cases large acreage Indian farmers received up to an 80 percent subsidy on fertilizer.

U.S. cotton growers competing with India for lucrative Chinese markets may find the playing field skewed, if technology and improved soil productivity continue to push India's cotton yields upward. Already, India is the second largest cotton producing nation in the world.

The globalization of agriculture is likely to continue to make crop selection more difficult for U.S. farmers. While technology may be streamlining production practices in many cases it makes marketing more critical.

Knowledge is a critical factor in making sound management decisions in agriculture and a growing base of knowledge has to be on the global scene.

TAGS: Outlook
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