Cool, wet conditions in much of the Midwest and concerns regarding future weather will delay the normal cycle of fertilizer restocking, bringing significant uncertainty to the 2013 Q2 fertilizer markets, according to a new report released by researchers at the Rabobank International Food & Agribusiness Research and Advisory (FAR) group. The report finds that, overall, the pace of fertilizer demand is now increasing seasonally and fuelling a pick-up in global trading activity.
The report goes on to show the fast-approaching Northern Hemisphere planting season will be pivotal in driving short-term agri-commodity prices. Across South America, all eyes are on the weather as planting of winter crops continues.
“Across most regions, a financial incentive to maximize production is driving a large planting, which will lead to a predominately neutral price outlook,” notes Sterling Liddell, Senior Vice President with the Rabobank Food & Agribusiness Research and Advisory group. “However, there are some uncertainties regarding policy, which will ultimately impact market sentiment. As a result, buyers will be cautious but eventually, global purchasers will need to lock in fertilizer supply contracts. ”
After a bullish start, global urea prices have started to wane. Delayed demand and field work in the U.S. and Europe respectively, have combined with oversupply (the extent of which was demonstrated in the much-anticipated import tenders in India during April) to drive a shift to a buyers’ market. Rabobank’s outlook for urea in Q2 2013 is neutral to negative.
Phosphate prices are expected to increase marginally, as various factors combine to limit demand. U.S. farmers applied significant volumes of DAP/MAP in Fall 2012, which will result in lower demand this spring. In addition, the 2012/13 crop year was the second year in a row to see elevated agri-commodity prices. While this would traditionally lead farmers to spend their additional purchasing power on phosphates to restore levels in the soil, this was done the previous year, so the catch-up effect will not be seen as robustly as in past years. Finally, China’s low export tax window will open two weeks earlier than in recent years, and the extra Chinese supply will lower the upside global price potential.
The reduction in international potash prices is directly related to the renegotiation of new supply contracts with importers in China and India. The willingness of growers in India to reduce potash application detracts from the industry’s intention to increase prices on the open market during this quarter. However, potash demand is expected to increase in South America and parts of Asia as farmers take advantage of good crop economics, which should enable the industry to avoid new strong price reductions in the short term.