EIGHT AGRICULTURAL CHEMICALS
Another bad year for a beleaguered industry MICHAEL HEYLIN, Bureau Head, New York City
F
ertilizer's woes: "After all our troubles over the past couple of years or so, we really needed a good spring . . . in fact, for a lot of us, we just had to have a good one . . . but it never happened . . . instead, we had the worst spring in 20 years." Thus, in a nutshell, did a long-faced executive recently sum up for C&EN the mounting woes of the beleaguered fertilizer industry. Seriously battered in the previous two fertilizer years by spiraling overcapacity, massive inventory buildup, and crumbling prices, the industry ran into further critical troubles this spring as bad weather cut into sales, weakened prices further, and increased the cost of doing business. Although all the figures aren't in yet for the full 1969 fertilizer year, which ended June 30, it seems that it will
turn out to have been the first year since the 1940's in which U.S. farmers used less fertilizer than they did the year before. What of the 1970 fertilizer year? The industry at the moment seems too shocked and too stunned by the bitter disappointments of recent months to say much. The prognosis is not good, however. The industry's basic problem of overcapacity will be about as bad as ever for most nitrogen and phosphate products, worse for potash. There are, nonetheless, a few tiny glimmers of hope. So far fertilizer makers have not cut their list prices for the fall as they usually do. Most inventories are down somewhat from their highs of a year or so ago. Also, with even average weather in the fall and in the big planting season next spring, fertilizer shipments could snap
back to show some quite sharp gains as farmers move to make up for some of the fertilizer applications they had to skip this spring. However, this year's disaster has put back any hope the industry had for a real upturn by at least one year, maybe two. Now the talk is of 1973 as being the next really good year for fertilizer makers. This time last year, the talk was of 1971 or 1972. Fertilizer men, like farmers, have the reputation of being chronic complainers about the weather. For them it is never right, never really good. This spring their wailings were apparently fully justified. A bad winter with heavy snow accumulations led to serious spring floods in the Mississippi valley and in other key areas. Unusually wet and cold spring weather added to the de-
Growth in consumption of plant nutrients slowed in almost every part of the country in 1968 Primary plant nutrients Thousands of tons Area
New England Middle Atlantic South Atlantic
Nitrogen 1967* 1968
P2O5
1967
44 217 688
40 230 723
50 254 533
East North Central West North Central
1,308 1,655
1,320 2,140
East South Central West South Central
452 725 275 609 5,975
Mountain Pacific Total
1968
44
1967
K2C>
Total 1968
1967
126 708 2,008
2.1
-10.6
3.1 3.8
1.0 2.8
3,816 4,064
12.4 16.5
0.3 19.2
1,302
1,155 1,423
4.1 11.6
0.6 9.3
475 918
553 961
13,851
14,815
11.0 7.0 9.5
16.4 4.7 7.0
141
254 534
47 230 732
42 225 751
1,199 1,101
1,194 1,179
1,297 653
1,302 745
3,803
442 787
342 386
351 420
353 191
361
1,148
217
324 637 6,643
186 228 4,279
212 238
13
17 87 3,747
4,426
80 3,597
1968
Average annual percentage growth of total 1960-67 1967-68
701 1,953
3,410
* All years ending June 30. Source: U.S. Department of Agriculture, Statistical Reporting Service SEPT. 1, 1969 C&EN 89A
National Plant Food Institute's new Fertilizer Index shows reduction in production, consumption, and inventories of most major fertilizers during the past year Year-to-year percentage change 1969* vs. 1968 Domestic Ending disappearance inventory Production
Nitrogen products Anhydrous ammonia Nitrogen solutions, more than 32% N Nitrogen solutions 32% N or less Ammonium nitrate Ammonium sulfate Urea Total Phosphates Phosphate rock Phosphoric acid Normal superphosphate Concentrated superphosphate Total Potash Products Muriate standard Muriate coarse Muriate granular Muriate soluble Total Multinutrient products Nitrogen base solutions Other mixed fluids Diammonium phosphate Other mixed solids Total Total,, all products
-1 -47 0 -11 -2 6 —4
-35 -79 -79 -47 -27 -52 —49
1 -41 17 3 13 10 3
-8 -3 -23 -8 —9
6 —10 -33 -52
+3
-3 -2 -19 -15 —6
-4 -4 -15 17 —1
-15 -19 -46 94 —2
-13 -2 -5 5 —3
22 10 -18 -7 —9 —8
28 -27 -39 —8 —17 —3
17 12 -13 -5 —6 —5
* For years ending June 30.
Pesticide statistics lag, but latest figures confirm continued strong growth in herbicide sales in 1967 1962*
45.7 Fungicides Herbicides 92.1 Insecticides 208.5 346.4 Total 1962*
97.0 Fungicides 95.2 Herbicides Insecticides 441.7 633.9 Total
1963
46.3 115.9 207.0 369.2 1963
93.3 122.9 435.3 651.5
* All years ending Dec. 31. Source: U.S. Tariff Commission 90A C&EN SEPT. 1, 1969
U.S. sales Millions of dollars 1964 1965
45.5 163.5 218.2 427.2
48.6 210.8 237.3 496.7
U.S. sales Millions of pounds 1965 1964
95.5 152.0 444.8 692.3
105.9 183.9 472.9 762.7
1966
1967
54.4 257.4 275.2 587.0
56.4 430.0 300.8 787.0
1966
1967
118.2 221.4 501.7 841.3
120.4 287.6 489.4 897.3
lays and kept farmers out of their fields for many valuable weeks. Such conditions, moreover, prevailed in essentially all the major agricultural states in the country. In a more typical spring, fertilizer people can usually look forward in any one area to a 60-day period during which farmers will be planting crops and applying fertilizer. This year the start of the season was so delayed that this application period was cut to as little as 35 days. In some midwest areas, for instance, corn was still being planted in late June, instead of all of it being in the ground by May 15. In some other parts farmers could not even start to work their fields until late April instead of the usual late March. Even when work could start, persistent bad weather often kept it to a few days a week. This compacted season not only cut down the time available for the farmers to apply fertilizer, it also tended to limit the acreage of crops planted. Total crop acreage probably fell to less than 300 million from the 307 million acres of last year and the 316 million of 1967. Also, the late start to the season meant that some acreage was switched from corn—a high fertilizer user—to soybean—a relatively low fertilizer user. The net result of all these, plus some other adverse factors, was a sharp setback for domestic fertilizer consumption. There is as yet no consensus as to just how much nutrient was used in the country in the 12month period ending June 1969, but there is no question that this 1969 fertilizer year was an extremely poor one. The year got off to a poor start last fall when bad weather and uncertainties over the coming administration's farm policies combined to keep fertilizer application at about the level of the previous fall—a particularly bad season. As to this spring's season, nobody questions that it was extremely poor also. There is still some discussion, though, about just how much of the
Domestic consumption of plant nutrients declined slightly in 1969 Primary plant nutrients Millions of tons
* All years ending June 30. **C&EN estimates. Source: U.S. Department of Agriculture, Statistical Reporting Service
veiy slow start was made up by some record shipments in late May and in June. May was probably one of the most active sales months in the history of the industry. One major producer claims that it has just had "the biggest June in our history." At press time estimates of total nutrient use during the 1969 fertilizer season range from a 5% increase to a 5% decrease 'compared with the previous year. The figures available tend to favor the more pessimistic outlook. Hence it seems likely that total nutrient consumption fell to about 14.3 million tons, 4% down from the 1968 total. Nitrogen use probably stayed about constant at near 6.6 million tons, while P 2 O s consumption dropped maybe 8% to 4.1 million tons and K 2 0 use fell about 5% to 3.6 million tons. The industry is just not accustomed to such declines. In fact it is not used to declines at all. It is geared to substantial and consistent growth—and it has good historical reasons to be so.
Between 1960 and 1968 use of each nutrient increased every year. Compounded average annual growth rate for the nutrient total during these years was 9.1%. For nitrogen it was 12.0%, for phosphate 7.2%, and for potash 7.5%. This recent setback in the use of fertilizer is all too sadly spelled out in the industry's new monthly statistical report. Run by the National Plant Food Institute, the survey plots yearto-year changes in the production, inventories, and domestic disappearance of the major fertilizers. The June report, covering the full 12 months of fertilizer 1969, shows total domestic disappearance of fertilizer down 5% from the 1968 fertilizer year. Nitrogen products show a slight gain of 3%, but phosphate products are off 6%, potash products off 3%, and multinutrient products off' 5%. Particularly strong declines are recorded for low concentration nitrogen solutions (41%), normal superphosphates (19%), concentrated su-
perphosphate (15%), and standard muriate (13%). Anhydrous ammonia managed a 1% gain, while high concentration nitrogen solutions were up 17%. The recent sharp and sudden downturn for fertilizer is apparent in production as well as in use statistics. For instance, domestic ammonia production increased at a compounded average annual rate of 14.2% between calendar 1960 and 1967. After peaking at 12.2 million tons in 1967 it fell 1% in 1968 to 12.09 million tons. The decline has continued. The latest Department of Commerce figures put production for the first 11 months of fertilizer 1969 at 11.28 million tons, 3% off from the first 11 months of fertilizer 1968. For ammonium nitrate the drop is even sharper. After growing at a compounded 9% per year for seven years and peaking at 5.70 million tons in 1967, production fell 9% in calendar 1968. It is off again in the early months of 1969. Even fast-growing SEPT. 1, 1969 C&EN 91A
Total domestic plant nutrient supply fell in 1969 for the first time since World War llT according to USDA Estimated supply of nitrogen for fertilizer use*
Domestic production Imports Exports Net domestic supply
1965**
1966
Thousands of tons 1967
1968
1969f
4870 470 392 4948
5597 529 546 5580
6277 669 749 6197
7259 676 1046 6889
7799 660 1510 6949
Estimated supply of P205 for fertilizer use*
Domestic production Imports Exports Net domestic supply
1965**
1966
4002 98 432 3668
4696 125 441 4380
Thousands of tons 1967 1968 5172 165 787 4550
1969 f
5371 169 1145 4395
5118 153 1243 4028
Estimated supply of K 2 0 for fertilizer use*
Domestic production Imports Exports Net domestic supply
1965**
1966
Thousands of tons 1967
1968
1969 f
2774 884 625 3033
2858 1332 664 3526
3096 1643 678 4061
2707 2226 714 4219
2502 2117 785 3834
* U.S. and possessions. * * All years end June 30. t U.S. Department of Agriculture estimate. Source: U.S. Department of Agriculture, Agricultural Stabilization and Conservation Service
phosphoric acid, up an average 13.9% per year from 1960 to 1967, has felt the pinch with production for the first 11 months of fertilizer 1969 off 7% from the year-earlier period. This follows a 5% drop between calendar 1967 and calendar 1968. Nitrogen solution production has also slumped. Between 1960 and 1967 it grew at a compounded 8.2% per year. In calendar 1968 it dropped 17% and for the first 11 months of fertilizer 1969 it is off 14%. The NPFI survey confirms these dwindling production rates. The June report shows total fertilizer production for fertilizer 1969 some 8% off from the previous year. All major products were down with nitrogen products off 4%, phosphate products down 9%, potash products down 1%, and multinutrient products off 9%. Only four of 18 individual fertilizer materials were up, with urea gaining 4%, soluble muriate 17%, N-base solutions 22%, and "other mixed fluids" 10%. Declines are also apparent in potash industry figures. The American Potash Institute pegs North American deliveries of K 2 0 for agricultural purposes during calendar 1968 at 4.18 million tons, a 2 % decline from the previous year. For the first quarter of this year deliveries were 1.23 million tons, 12% down from the year-earlier quarter. When all these declines of the 1969 92A C&EN SEPT. 1. 1969
fertilizer year are combined with the poor growth of the previous year, it is not difficult to fathom what has happened to the industry's capacity-demand relationship. The industry's ambitious expansion plans were made and implementation really started about three to five years ago. In those days domestic fertilizer demand was going through the barn roof—and it was apparently set to continue to do so. Also the U.S. seemed poised for a national effort to help feed the undernourished millions of the world by massive exports of both food and fertilizers. In fertilizer 1966 domestic consumption of nutrient rose 14% over 1965. This was followed by a 12% increase in 1967—a disappointment, as some producers were confidently expecting a 20% growth for the year. Then things started to turn sour. With many in the industry expecting 15% per year growth or better, there was only a 7% increase in nutrient use last year. Now, this has been followed by an actual decline. This means that domestic use has essentially stagnated during the past two years instead of growing the 30% or so hoped for by some. With the host of oil companies and other new producers desperately seeking markets for the flood of fertilizer gushing from their new high-cost plants, the industry has boosted capacity to handle far
more than even the 30% increment. As one major veteran fertilizer producer tells C&EN, "The industry this year had the capacity to produce 40% more fertilizer than was needed." Net result: continued chaos in the market place. Prices For a few fleeting weeks last winter it seemed there was hope of straightening out some of this chaos. Prices showed some life, and even some signs of moving up significantly. Late last year diammonium phosphate (DAP) prices perked up from the "fire sale" level of less than $50 per ton last fall to $60 per ton. Also $5.00 per ton was added to the tabs for some nitrogen fertilizers. At the time there was some feeling that producers were finally fed up with their nonexistent profit margins, were prepared to run their plants at less than 100% capacity, and were anxious to maintain some kind of price line. Also, inventory levels were sharply down for a number of key products. For instance, at the end of January this year normal superphosphate inventories were off 32% from a year earlier, and concentrated superphosphate inventories were off 48%. In January and February some further price boosts were made in the formal list price for anhydrous ammonia, DAP, and some other products. A fragile optimism persisted, although it was recognized that the new prices would not really be tested until bigvolume shipments started in the early spring. There were hopes that the better inventory situation and the lowered production rates for many products would give the new prices a sporting chance. There were some in the industry who were saying at the time that the industry could look for some sort of turnaround this year. They at least hoped that the industry would lose less money in 1969 than it had the year before. Even this modest optimism depended on strong demand when spring came—and the weather took care of that.
The delayed start of the season, the reduced volume moved, and some aggressive producers with major new plants using price cutting to hack out some kind of a market quickly swept away the price increases and re-established the declining price pattern of the previous two years. According to one major producer, fertilizer prices this spring were, on average, between 5 and 10% below their spring 1968 levels. For instance, phosphate rock price has slipped about 10% in the past year. Also DAP was about $60 per ton this spring, compared with about $65 per ton a year earlier. Price of anhydrous ammonia delivered to corn belt farmers dropped to a typical $55 to $60 per ton this spring, as much as $10 below the spring 1968 level. This ammonia pricing highlights some of the irony in the fertilizer maker's present nonprofit situation. In 1966 he could produce ammonia for about $40 per ton in a then-modern 400 ton-per-day plant and sell it to the farmer for something like $110 per ton. This left him with about $70 per ton to cover storage and shipment of the product as well as his financial return. Now after investing about $20 million in a new 1000 ton-per-day single-train plant he can make ammonia for a much reduced price—about $25 per ton. With it now selling to the farmer at about $60 per ton, however, the difference between selling price and production costs has crashed from $70 to $35 per ton. This price performance can, of course, be directly related to the massive overcapacity in the market. In calendar 1969 domestic ammonia production will probably total a little more than 12 million tons, as it has for the past two years. But with about 30 of the new 1000 ton-per-day units now on stream, current capacity is close to 17 million tons per year—and that total has been reached in spite of the flock of older plants, with a total capacity of as much as 3 or 4 million tons per year, that have been closed down in the past two years. The same sort of thing has happened in potash. The massive modern mines
in Saskatchewan, Canada, have slashed production costs compared with the older mines in New Mexico. Price declines have more than kept pace, though, plunging to $11 per ton this year from about $22 per ton as recently as 1966. Some sales have been made as low as $9.50 in recent months. In calendar 1968 total potash deliveries in North America for all purposes were 10.1 million tons. Canadian capacity alone will reach 10.8 million tons and so, in theory, make the still considerable U.S. capacity surplus. In 1968 U.S. production totaled 4.7 million tons. What all these troubles have done to the fertilizer industry's profitability in recent years is not hard to guess, but is hard to pin down in any detail. The industry is extremely diffuse. There is no major U.S. company that has more than half of its sales in fertilizers. With many major chemical and oil companies dominating the field, fertilizers typically represent less than 10% of a producer's total sales. Most of these companies do not break out earnings from fertilizers. However, there are a few exceptions. For instance, International Minerals & Chemical Corp. had agricultural sales of $229 million in its fiscal year ending June 30, 1968, 46% of total sales. The company reports that declining product prices have helped cut its operating income from these fertilizer operations (as a percentage of sales) from 17.9% in 1966 to 11.5% in 1967 and 7.2% in 1968. This year will be even worse. In 1966 the company's earnings peaked at $2.76 per share. In 1967 they dipped to $1.70 per share and $1.44 per share after extraordinary items. In 1968 they were down again, to $1.01 per share and 67 cents per share after extraordinary items. For fiscal 1969 the company originally hoped to make about 75 cents per share. As the year progressed confidence ebbed. The estimate was first dropped to 50 cents per share, and then later the company was estimating that the final figure would "be closer to the break-even point than to the 50 cents-per-share figure." It
turns out that the company earned 9 cents per share for the full fiscal 1969, but it also had extraordinary charges equivalent to $2.18 per share. The company does not see many signs of improvement for another six months or so. It cut out its June quarter dividend altogether after halving dividends, from 25 cents per share to 12.5 cents per share, in September 1968. The fertilizer operations of W. R. Grace also show the ravages of the recent price declines. Last year agricultural products involved 29.5% of the company's assets, provided 20% of the company sales, but contributed only 5.4% of the company's pretax profit. The situation has not improved this year. As of midyear the company's total earnings were 35% off the pace of the year-earlier period. Dwindling returns from agricultural chemicals were at least partly to blame. American Cyanamid shows a similar pattern. In 1968 agricultural products contributed 19% to the company sales but only 14% to earnings. In the second quarter of this year, when earnings fell 4% from the year-earlier quarter, the company reported that agricultural sales were somewhat lower than last year, while earnings showed a "sizable decline." Most producers do not look for any major earnings upsurge next year, or even for several years. After expressing strong hopes last summer that the 1969 fertilizer year would mark a slight upturn in their fortunes, or at least the bottom of the trough, they now find themselves worse off than they were a year ago. Capacity expansions have gone ahead in all three nutrients, but with consumption remaining static, overcapacity has increased. The only thing that will start to pull the industry back into anything like reasonable financial shape is two years with no more major capacity expansions—something it will likely get. These two years also have to bring good fall and spring planting and fertilizer seasons so farmers can get their nutrient use moving upward againonly the weather will determine this. SEPT. 1, 1969 C&EN
93A
