A Primer on Fertilizers

Chris Berry  |

Editor's Note: This is the second installment of a two-part series. Be sure to read Part I: The Underappreciated Significance of Food Security

The potash and phosphate markets are dominated by a select group of giants, so finding the low-cost producers in reliable geopolitical jurisdictions is key to success. With net global population set to rise due to an emerging middle class and shrinking arable farm land, a closer investment look at agricultural efficiencies and fertilizers is warranted.

The essential need for fertilizers in ensuring the healthy growth of crops is not a secret, but the fertilizer story seems to have been lost in the broader critical minerals story. Many entities, NGOs, investment banks, and think tanks are projecting a global population of between 9 and 9.5 billion inhabitants by 2050. This is a 30% increase from just over 7 billion today. 












Shrinking arable farm land complicates the food picture. New agricultural technology has the potential to increase production from arable land, however the projected rate of increase in global population will very likely outpace the amount of arable land that can be made available.

Accompanying this shift is a change in the typical emerging middle class diet, again driven by improved living standards in developing markets. 

Most market participants see no discernible sign of these demographic trends abating, and this lays the foundation for a more complete analysis and understanding of supply and demand in the fertilizer space. 

The Different Types of Fertilizers 

Broadly speaking, fertilizers are broken down into three nutrients – Nitrogen, Phosphate (or phosphorous) and Potassium. Each nutrient provides unique benefits that stimulate healthy agricultural production. Demand for each is forecast to grow at different rates (1.5%, 2.3%, and 3.7%) per year respectively. This can be compared to the long run (50 year) CAGR of fertilizer consumption of 3.6%. 

Today we focus on phosphate, which complements our previous research on potash supply and demand. 

In addition to the long-term demand drivers for fertilizers mentioned above, adverse weather (global warming) and increased biofuels usage (ethanol) are other factors now altering the supply and demand balance. 

As governments of developing economies attempt to ensure that their rapidly growing populations have higher quality nourishment, it is evident that access to quality phosphate rock is an important security of supply story. 

Phosphate Specifics 

Hard rock phosphate is the primary source for several different fertilizers. These are: 

  • Mono-ammonium phosphate (MAP) 

  • Di-ammonium phosphate (DAP) 

  • Triple-superphosphate (TSP) 

  • Superphosphate (SSP) 

Phosphate ore is typically mined and processed into fertilizer. MAP and DAP are the most common of these. Phosphoric acid is also produced during processing. Additionally, phosphate ore may be processed into various uses such as for animal feed and other human applications, but these account for a minority of uses (less than 15%). 

Once the ore is mined, it is then dissolved in acids (phosphoric and sulfuric) to produce additional phosphoric acid. This phosphoric acid is combined with ammonia and granulated to produce MAP and DAP. Additional chemical processes produce different types of phosphate-based fertilizers. 

The several types of phosphate fertilizers differ based on their percentage of contained P2O5. It is also important to remember that phosphate, like many other minerals, is non-renewable or recyclable. Many in the industry have stated that there is no substitute, so as the emerging global middle class explodes in the coming decades, market disruptions will create significant opportunities – one of the main reasons fertilizers deserve your investment consideration for further study. 

















A flow diagram demonstrates the process described above.

Potash Corp (POT)  has estimated that 50% of global food production is due to fertilizer usage, with the other 50% the result of factors including irrigation, planting density, and cultivation practices. 

Global Mined Phosphate Production and Trends 

According to the USGS, phosphate is mined in the following countries:


















Subscribe to get our Daily Fix delivered to your inbox 5 days a week

The U.S., China, Russia and countries in Western Africa account for the bulk of supply. However, this is likely to change as environmental laws tighten in the U.S., mining becomes more expensive in China, and political instability in countries like Western Sahara and Morocco remains a significant risk. With respect to China, we believe more mineral production will stay “on-shore” to feed the populace. 

It is important to remember that the recent uprisings which began in Northern Africa and subsequently spread throughout much of the Middle East began in Morocco mostly as a result of higher food prices amongst other issues. 

I stated above that phosphate rock demand was forecast to grow at roughly 2.3% per year up to 2017. This equates approximately to an additional 5 million tonnes of additional supply needed per year. Currently China and India comprise the bulk of phosphate (DAP/MAP) demand. The trends in their phosphate production, consumption, and imports are below:















It is evident that there is sufficient phosphate supply. Inabilities to secure phosphate rock at an economic price from a stable jurisdiction are the key issues. 

The major phosphate and potash producers (shown below) are attempting to integrate vertically to capture additional margin along the value chain, making accessing “cheap rock” a must. 

Who are the Players? 

Courtesy of Mosaic (MOS) , the largest of the combined phosphate and potash producers:



Source: Mosaic Corporate Presentation 

OCP is based in Morocco and is one of the few pure phosphate plays in the space. OCP produced roughly 27 million tonnes (~13%) of global phosphate rock in 2012 with plans to double this production in coming years. As OCP is an operation that is vertically integrated, not all of this 27 million tonnes is exported. Other phosphate producers such as Phosagro have announced similar expansion plans. The markets will pay a premium on those phosphate rock deposits that offer attractive economics and the ability to integrate into existing supply chains in the coming years. 

Pricing Dynamics

The price of Phosphate fertilizer is determined based on the price for phosphate rock. The current benchmark is the Morocco/North Africa export price, and it is Morocco where the price is typically set. Like many other metals or minerals, the higher the grade, the more valuable the rock. The Morocco/North Africa rock concentrate price is based on a ~30-32% P2O5 and is currently at ~$100 per tonne. 

As stated before, phosphate rock is used in the production of phosphate fertilizers (MAP, DAP, etc). It is the fertilizers which command a higher price. Many of the producers of phosphate fertilizer own and operate their own mines and thus are vertically integrated. This is a trend that is expected to continue, but as phosphate is a non-renewable resource, it stands to reason that phosphate rock miners will be on the lookout for economic deposits of phosphate to replace mined tonnes. 


To reiterate, there is no current issue with a lack of supply of phosphate (either mined or in the ground). Demand is forecast to increase by roughly 2.3% year into the foreseeable future. The increased supply necessary to meet this demand is dependent upon a host of disparate factors. The potential opportunity arises when one connects several looming issues that, when put together, warrant further study of the fertilizer business; specifically phosphate. 

These include: 

  • The quality of life dynamic we have discussed so frequently with increasing populations living longer lives and adopting more protein-heavy diets in the face of decreasing arable farm land. 

  • A majority of the phosphate rock produced originates in parts of the world where geopolitical instability or resource nationalism is rife. This puts a premium on security of supply. 

  • Mining costs are increasing throughout the world, putting a premium on potential low-cost deposits. 

  • The major phosphate producers have made commitments to increase production in coming years, but this is to integrate into existing downstream supply chains. This infers less raw phosphate rock for export. 

  • Less raw phosphate rock for export should put a premium on those undeveloped deposits that offer the most attractive economic profiles. 

  • Though major producers outside of the US have made public pronouncements of capacity expansion, the trend is actually forecast to reverse in the United States. 

Food security and a reliable and steady supply of fertilizer and agricultural technology promise to be exciting sectors to watch in the coming months and years as an increasingly hungry world clamors for affordable sustenance.




DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Market Movers