Despite drought, fertilizer sales expected to be strong
Extremely dry conditions, damaged crops and an early harvest are not anticipated to dent fertilizer sales for CF Industries. The fertilizer manufacturer announced the results of its second quarter sales and offered an outlook on fertilizer sales through the rest of 2012.
CF Industries CEO Stephen Wilson said the drought is taking a toll on farmers in the United States, but overseas demand will drive fertilizer sales until the drought ends.
"I wouldn't suggest there is any permanent (fertilizer) demand destruction," in the U.S., Wilson said. "Also, demand in India and China has yet to be filled. Brazil and Argentina are countries that we are participating in and, combined with low inventories around the world, we see a positive operating environment going forward."
This summer’s drought and diminished crop yields are expected to push expectations for higher planted acreages in 2013. This push will likely mean a strong demand for fertilizer, the company said. Although harvest has started early in many parts of the United States, the July World Agriculture Supply and Demand Estimates report, the U.S. Department of Agriculture showed continuing reductions in its U.S. corn yield estimate from 166 to 146 bushels per acre. Further reduction in the yield projection is possible since the season isn’t over yet. As a result, corn futures prices have rallied to levels, which imply 2013 corn plantings of approximately 96 million acres, CF Industries noted.
CF Industries expects robust fall ammonia demand as the North American supply chain restocks to support the high planted acreage anticipated next year. Given the large amount of ammonia applied in the first half of 2012, inventories are believed to be at or near historically low levels, creating a significant need, as well as potential challenges, to restock the North American agricultural ammonia supply chain. Additionally, global ammonia market prices have increased recently on concerns about tight supply as a number of offshore producers are expected to experience outages. These dynamics should support ammonia prices.
The urea market is expected to reflect strong global demand to support 2013 plantings and supply impacts from continued new project delays. Although dry weather across the U.S. wheat growing regions may delay fall fertilization, the high number of overall crop acres expected to be planted in 2013 supports continued strong North American demand for urea. Additionally, customers in international markets such as Southeast Asia have not yet finished fulfilling their urea needs and an increase in South American demand is expected to support higher planted acres in response to attractive crop prices. Unscheduled outages and planned turnarounds at a number of urea production facilities, along with additional delays in starting up new plants, could result in tight supplies over the remainder of 2012.
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