A new report on the global fertilizer industry from Rabobank predicts increasing demand for fertilizer, which is expected to spur international trading.

The increase in global demand is stemming from the rough growing season in 2012, which saw many grain yields depleted throughout the world due to drought and heat and other environmental factors. This situation has caused grain prices to increase, which in turn is anticipated to spur farmers to want to plant more grain next year to capitalize on higher grain prices, according to the new report from Rabobank’s Food & Agribusiness Research and Advisory group. As farmers push to capitalize on higher grain prices, their desire to get the best yields possible will include the need for fertilizer.

“The severity of the U.S. drought drove up global grain and oilseed prices significantly,” according to the report. “Global fertilizer demand should benefit from higher agricultural commodity prices, which elevate the purchasing power of farmers. Improved cash flows should see farmers increasing their expenditure on farm inputs in a bid to increase yields and further capitalize on the higher prices. In the wake of rallying agricultural commodity prices, fertilizer activity began to pick up as buyers were encouraged to step back into the market.”

Fertilizer inventory is expected to be adequate in some key markets. However, China will close its low export tax windows for phosphate and urea, which will affect export availability. Additional fertilizer capacity is expected to come online as plants restart after temporary shutdowns for maintenance.

In South America, Rabobank expects this region to be critical in restoring the global balance of grain and oilseed markets. With El Nino expected to strengthen, this will bring higher summer rainfall in Argentina and Brazil. Farmers in Brazil’s grain belt planted early and expecting a bumper corn crop and record soybean crops.