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Why potash fertilizer stocks may be better for a retirement investment (Part 2)

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Continued from Part 1

Part 2: The NPK ratio

In Part 1, we explained how increased use, as well as balanced application, of fertilizers can increase yield. To assess which fertilizer farmers most under-apply, we must first understand the NPK ratio of each country, as well as the total consumption of each type of fertilizer. In Part 2, we’ll analyze the NPK ratio. The NPK ratio represents the amount of Nitrogen (N), Phosphate (P), and Potash (K) used. For example, if a tonne of potash were consumed, a ratio of 5:3:1 would mean 5 tonnes of nitrogen and 3 tonnes of phosphate were consumed. This will be important in identifying which fertilizer may be over- or under-applied.

NPK Ratio by Country 2013-07-30

Optimal NPK ratio

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Although the optimal application ratio depends on soil characteristics or quality and crop, scientists recommend the overall application ratio of about 4:1:1. The fertilizer Association of India recommends 4:2:1 for its country, and we see developed countries such as the United States and those in the European Union applying a ratio of 3:1:1.

China and India: Overuse of nitrogen, underuse of potash

Based on the latest fertilizer consumption data pulled from the International Fertilizer Industry Association, China and India heavily use nitrogenous fertilizers, with NK (nitrogen-to-potash) ratios of more than six times. These effects are most prevalent in wheat and maize plantations. Under-educated farmers, inelastic demand, favorable policies, price, and the wide supply of nitrogenous fertilizers are factors that explain the overuse of nitrogenous fertilizers.

Brazil: Underuse of nitrogen

You might ask, “But how about Brazil, with its Agribusiness representing ~20% of its GDP?” The relatively low NPK ratio in Brazil is partially driven by a significant chunk of crop output being soybean, which captures nitrogen in the air. However, Brazil’s nitrogen consumption for maize was just 1.11 metric tonnes to 1 metric tonne of potash in 2007–2008, with an NPK ratio of 0.66:0.88:1 as a whole. If Brazil had applied an NPK ratio of 3:1:1 to maize back in 2007–2008, the country’s total NPK consumption ratio would have been 1.07:0.88:1. So while Brazil has made some improvements since 2007–2008, as 2011’s NPK ratio was at 0.76:0.88:1, it still has a bit farther to go.

Based on our NPK ratio analysis, we see potential growth in Brazil’s nitrogen demand, as well as India and China’s potash consumption. But how much growth will these changes add to existing demand? Continue on to Part 3 to learn more.

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