TRAINING ON FERTILIZER DEMAND FORECASTING

Patrick Heffer, IFA

19 April 2013Moscow, Russia

What Is IFA?

IFA in Brief

Non-governmental organization representing the world fertilizer industry

About 540 members in 85 countries( including Uralkali and many other Russian fertilizer producers)

Based in Paris Organized around three standing committees:

o Technical

o Production and International Trade

o Agriculture Main activities: market analysis, issue management/

advocacy, conference organization

IFA Agriculture Committee

  Four objectives:

Address issues facing fertilizerdemand

Promote the efficient, balancedand responsible use of fertilizers

Improve the public image of fertilizers

Develop reliable and authoritative fertilizer demand forecasts

Reports on demand forecasts twice a year

Annual Conference (May/June)medium-term (5-year) forecasts

Enlarged Council Meeting (Nov/Dec)short-term (1-year) forecasts

Improving the forecasts

Develop network of correspondents

Guidelines for a crop-based approach

Regional training programmes

IFA Agriculture Committee

   Develop reliable and authoritative fertilizer demand forecasts

 

IFA’s Fertilizer Demand Forecasts

  Current strategy

Rely on information provided by a network of correspondents in ~50 countries

Heterogeneous inputsessentially due to different methodologies used depending on the countries Trend forecasts Government objectives Recommended application rates Econometric model (e.g. India, Brazil) Crop-based / expert-based model (e.g. EU, USA)

Methodology and Information Used by IFA

  Correspondents are not enough

Use additional sources of info (reports, articles…) on: Economic context, weather,

policy factors Global agricultural situation

Check consistency between national forecasts and the global scenario

Forecasts provided by the correspondents are revised in more than half of the countries !They are almost always revised down.

 And checks are needed

Fertilizer demand forecastsare cross-checked with forecastson the supply side

To ensure consistency between the two sets

To issue forecasts on the supply/demand balances

Methodology and Information Used by IFA

National forecasts are the starting point: They provide

the foundation for developing regional and global forecasts

High margin of error

Mostly over-estimation

Small margin of error

Balanced fluctuationsaround actual demand

Objective

Importance of Good National Forecasts

Objective - Improve national forecasts, which should resultin turn in better regional and global projections

Developed guidelines for a crop-based, expert-based forecast

On-the-ground training programmes

IFA Training Programme on Fertilizer Demand Forecasts

 

Crop-Based, Expert-Based Forecast

Why Is It the Preferred Methodology?

What is a Good Forecast?

….. the most likely scenario

Independent from: Commercial pressures Governmental objectives Fertilizer recommendations

As realistic as possible Not too optimistic over-investments Not too pessimistic would endanger food

security Often more conservative than governmental targets

Types of Forecast Methodologies

Trend analysis

Growth rate models

Production/trade models

Econometric models

Crop-based, expert-based models

Why Does IFA Recommend Using a Crop-Based, Expert-Based Approach? Can be used on a consistent basis across all the

countries and regions

Yields much more accurate forecasts than the trend analysis, growth rate models and production/trade models

Does not require large databases and knowledge in econometrics as econometric models. Also, more accurate than econometric models

Explains where changes in demand are anticipated to come from

 

The Four Stages of

a Crop-Based, Expert-Based Forecast

The Four StagesThe Four Stages

Our Goal: “To Arrive at a Realistic, Objective, and Defensible Forecast”

Main Steps:

I. Create a Historical Database or ‘Base Year’

II. Develop a Qualitative Scenario: Outlook Conditions

III. Prepare the Quantitative Forecast

IV. Validate the Forecast

I. The Historical Database Overview

Consists of Data for 3 Forecast Components:

1. Area Planted to Major Crops

2. Percent of Planted Area Fertilized by Nutrient and Crop Type

3. Average Application Rates of Nutrients by Crop Type

I. The Historical DatabaseData Collection

1. Area Planted to Major Crops

Identify the Major Nutrient Consuming Crops

Develop a Database:

• Major Crops

• Other Crops

Potential Problems

• Only Harvested Area Data is Available

• Data Only Available for Some/Few Crops

U.S. Nutrient Use by Crop, FY2004/05

44

17

2

5

41

1614

5

43

5

19

6

0

5

10

15

20

25

30

35

40

45

50

Corn

Wheat

Soybeans

Cotton

Corn

Wheat

Soybeans

Cotton

Corn

Wheat

Soybeans

Cotton

percent NITROGEN POTASHPHOSPHATE

Nutrient Use – Major U.S. Crops

68% 76% 73%

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Corn Wheat Soybeans Cotton

Th

ou

san

d A

cres

Acres Planted – Major U.S. Crops

Share of Total Fertilizer Consumption by Crop Type in 2010 in Russia

wheat+ barley+ maize + sunflower + sugar beet= 75-80%

Source: IFA

I. The Historical Database Data Collection

2. Percent of Planted Area Fertilized• Identify Area Fertilized for Each Major Crop• Express as Percent of Planted Area

3. Average Application Rates• Determine Amount of Each Nutrient Applied to

Crop• Express in kg/ha

Potential Problems• Only Some Data Exists

Percent of Corn Acres Treated by Nutrient

0

10

20

30

40

50

60

70

80

90

100

19

64

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

Pe

rce

nt

N P2O5 K2O

Application Rate per Treated Corn Acre

0

20

40

60

80

100

120

1401

96

4

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

lbs.

pe

r tr

ea

ted

acre

N P2O5 K2O

Average Nutrient Application Rate - Corn

0

20

40

60

80

100

120

1401

96

4

19

66

19

68

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

lbs.

pe

r a

cre

N P2O5 K2O

II. The Qualitative Scenario

“What Will the Future Look Like?”

Develop Assumptions About Conditions That Will Impact Crop Acreage and Nutrient Application

Consider• Domestic and World Economies• Crop Market Conditions• Fertilizer Market Conditions• The Regulatory Environment• Infrastructure Investments or Limitations

Avoid• Government/Industry Targets

III. The Quantitative ForecastApplying Your Qualitative Conditions

“For Each Crop, Consider Impact of Stage II Assumptions on Each Forecast Component”:

Area Planted

Impacted by:• Crop Prices • Weather • Government Policies • Changes to Demand• Infrastructure

“For Each Crop, Consider Impact of Stage II Assumptions on Each Forecast Component”:

Percent of Area Fertilized and Application Rates

Impacted by:• Crop Prices and Yields• Fertilizer Prices and Availability• Soil Type, Moisture, and Weather• Policy Changes

III. The Quantitative ForecastApplying Your Qualitative Conditions

IV. Forecast Validation

Recall Our Goal: “To Arrive at a Realistic, Objective, and Defensible Forecast”

The Final Step: Verify That the Forecast Meets These Criteria 1. Cross Check Results2. Seek Out Supporting Data3. Compare to Other Methodologies

• Trend Forecast• Econometric Model if Available

Once Comfortable With the Forecast, Explain Results

Concluding Remarks

Maintaining Your Forecast1. Update Your Stage II Assumptions Regularly2. Anticipate/Explain Structural Changes

• Historical Data• Forecast

3. Compare Results With Others4. Rely On and Trust Your Own Expertise

Your Forecast Will Improve Over Time• Progressive Increase of Crop Coverage• Progressive Improvement of Data Quality

Crop-Based, Expert-Based Forecast in Summary

Our goal: “to arrive at a realistic, objective, and defensible forecast”

Main steps:

I. Create a historical databaseor ‘base year’

II. Develop a qualitative scenario:outlook conditions

III. Prepare the quantitative forecast

IV. Validate the forecast

3 variables

1. Area planted to major crops

2. Percent of planted area fertilized by nutrient and crop type

3. Average application rates of nutrients by crop type

 

Outlook for World and Regional Fertilizer Demand

Note regarding data presented:Short-term outlook of December 2012Medium-term Outlook of June 2012

World Cereal Productionand Utilization (Mt)

Source: FAO

Balance forecast at the end of the 2012/13 campaign:

FAO: -30 Mt

USDA: -45 Mt

IGC: -45 Mt

World Cereal Stock-to-Use Ratio

Source: FAO

Anticipated ending stock evolution in 2012/13:

Wheat: -23 Mt (-12%) Lowest S/U ratio since 2007/08;

2nd lowest since 1980 Major exporters stock-to-

disappearance: 13.9%

Coarse grains: -13 Mt (-8%) Lowest S/U ratio since 1980 Major exporters stock-to-

disappearance: 8.9%; below 6% in the US

Rice: Increase for 6th consecutive year

Relative Evolution of Agricultural Commodity Prices

Sources: Financial Times and IMF

Relative Price Evolution from January 2006 to October 2012

Rice

Rice Maize

Maize

SoybeanSoybean

Wheat

Wheat

Global Fertilizer DemandShort-term Forecasts (Mt nutrients)

Source: IFA Agriculture

Reminder on reference years:~1/2 of the world market: January X December X~1/6 of the world market: April X March X+1~2/6 of the world market: July X June X+1

Change

2011/12 2012/13 2013/14

N +3.0% +1.5% +1.5%

P2O5 +1.2% -2.7% +3.5%

K2O +2.1% +0.1% +4.5%

Total +2.4% +0.3% +2.4%

Global Fertilizer DemandShort-term Forecasts (Mt nutrients)

Source: IFA Agriculture

N

P205

K20

3,159.0

469.0

572.0

1,640.0

-1,094.0

33.0

1,614.0

1,411.0

1,278.0

Variation in 2011/12 Variation in 2012/13 Variation in 2013/14

Source: IFA Agriculture

Regional N Fertilizer Demand Short-term Forecast (Mt N)

Oceania

West Asia

Africa

E. Eur. & C. Asia

W. & C. Europe

Lat. Am. & Carib.

North America

South Asia

East Asia

-1,000 0 1,000 2,000 3,000

Variation in 2011/12Variation in 2012/13Variation in 2013/14

Source: IFA Agriculture

Regional P Fertilizer Demand Short-term Forecast (Mt P2O5)

Oceania

West Asia

Africa

E. Eur. & C. Asia

W. & C. Europe

Lat. Am. & Carib.

North America

South Asia

East Asia

Variation in 2011/12Variation in 2012/13Variation in 2013/14

Source: IFA Agriculture

Regional K Fertilizer DemandShort-term Forecast (Mt K2O)

Oceania

West Asia

Africa

E. Eur. & C. Asia

W. & C. Europe

Lat. Am. & Carib.

North America

South Asia

East Asia

-1,500.0 -1,000.0 -500.0 0.0 500.0 1,000.0 1,500.0

Variation in 2011/12Variation in 2012/13Variation in 2013/14

Source: IFA Agriculture

2013/14 vs. 2007/08 (Mt nutrients)

OceaniaWest Asia

AfricaE. Eur. & C. Asia

W. & C. EuropeLat. Am. & Carib.

North AmericaSouth Asia

East Asia

K2OP2O5

N

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11

49% of global net increase

Medium-Term Outlook for Agricultural Commodity Prices

World Nominal Prices (US$/t)

Source: OECD-FAO

Global Fertilizer DemandMedium-term Outlook (Mt nutrients)

Source: IFA Agriculture

Average Annual Change

Base Year 2016/17

N +1.5% p.a.

P2O5 +2.3% p.a.

K2O +3.7% p.a.

Total +2.1% p.a.

Base year

Regional Fertilizer ConsumptionMedium-term Outlook (Mt nutrients)

Source: IFA Agriculture

Oceania

West Asia

W. & C. Europe

North America

East Asia

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

Av. 2009/10 to 2011/12Variation in 2016/17

30%

21%

24%

6%

for more information:

www.fertilizer.org