Fertilizer Markets and Finance

The financial losses to US farmers from this year’s devastating drought may be deeper than some corporates have prepared for, thanks to a failure among growers in worst-hit areas to take out crop insurance.

Some 30-35% of corn in Illinois and Indiana, where crops have been particularly hard hit by drought, is not covered by insurance, analysis of official data by broker Allendale showed.

The two states account for 19.2m acres of corn sowings this year, or 20% of the US total, according to the US Department of Agriculture.

While some other farmers are covered by revenue protection policies, “the takeaway from this information is that the agricultural community will likely have some dark spots in the months ahead”, Paul Georgy, the Allendale president, said.

“There will be bankruptcies” among farmers, he said, with the potential even for insured growers to suffer significant hardship if the corn rally crumbles over coming weeks, with the monthly average value in October used as a basis for payouts.

Read more at Agrimoney

The U.S. is in the grips of its worst drought in 25 years, farmers are considering pulling out their corn crop early to feed the stalks to cattle, and the World Bank is watching global food supplies.

And fertilizer companies are set to reap huge profits.

The pounding heat and dry conditions that are crippling corn crops are wreaking havoc with supplies. That’s driving prices for the commodity higher.

This growing season is already a write-off, but for the next one, farmers will plant more seed and use more fertilizer and insecticide as they chase those higher corn prices.

That means bigger profits – and soaring stock prices – for companies such as Agrium Inc., Potash Corp., and Mosaic Co.

“It was only six weeks ago that most observers were fearful of a blockbuster U.S. plan and record yield forecast that suggested domestic corn stocks (inventories) were poised the surge. Corn prices were in sharp retreat as a result – until Mother Nature turned up the head,” Steve Hansen, an analyst at Raymond James who covers Potash Corp, wrote in a research report issued last week.

Prices for corn have increased dramatically – 38 per cent since June 1. The price of a bushel now stands at $7.88 (U.S.)

“Sharply higher corn prices should incentivize farmers to maximize their fertilizer applications (this fall and next spring) in order to reap the highest possible return on their future crop.”

Read more at Thestar.com

Corn that has missed pollination due to high temperatures and little rain stands in Geff., Ill. The field is considered a total loss by the farmer. The nation’s widest drought in decades is spreading.                ROBERT RAY/AP

Western Australia joined the list of major grain-producing areas where crops are under threat of dry weather, which has already killed some canola crops, even as rains refreshed many eastern areas of Australia.

Many growers in Western Australia, Australia’s top arable state, have stopped their autumn sowing campaign because of the persistence of dry conditions which farm officials warned of three weeks ago, noting then that many areas had “very low levels of plant available water leading into winter”.

The conditions, which Commonwealth Bank of Australia on Monday termed “unfavourably dry”, have prevented seeds germinating in many areas, and in some others withered many crops which have sprouted.

“It is not really that good at all,” Australia & New Zealand Bank analyst Paul Deane said.

“Emergence is pretty patchy. Crops are certainly not off to a good start.”

Rapeseed setbacks

The problems are seen besetting in particular canola and malting barley varieties, which are earlier sown that wheat, and for which planting windows are ending.

“Wheat has still got plenty of time,” Mr Deane told Agrimoney.com.

Read more at Agrimoney

Zimbabwe looks set to reverse a trend of falling corn exports after the troubled nation, once known as the bread-basket of southern Africa, revealed the loss of nearly half its crop to drought.

Zimbabwe’s agriculture minister, Joseph Made, warned that 45% of the 1.69m hectares of corn that growers planted this season “is a write-off” following a prolonged dry spell.

The loss meant Zimbabwe, which had been expected to see a rise in corn production, would harvest 1m tonnes this year, a drop of more than one-quarter on the 2011 result, the ministry said.

And even though the country has 400,000 tonnes of corn in store, following a 2011 harvest which, at 1.35m tonnes, was the best in a decade, Zimbabwe will need a further 400,000 tonnes in corn imports.

Read more at Agrimoney

The recovery in sugar cane output Brazil’s main sugar producing region this year will be limited by drought, which “heavily damaged plant growth”, cane industry group Unica said in a long-awaited forecast.

Sugar futures recovered from negative territory to stand 1.2% higher.

The influential group, in its first estimate for 2012-13, pegged cane production in Brazil’s Centre South region, responsible for nearly 90% of Brazilian output, at 509.0m tonnes.

This represents a 3.2% rebound from the 2011-12 harvest, which fell for the first time in a decade, damaged by the impact of poor weather on Centre South cane whose average age is well above ideal levels.

However, it is below the 532m-tonne crush forecast for the region byBrazil’s crop bureau, Conab, on Tuesday, and a consensus of 520m tonnes, as identified by Australia & New Zealand Bank.

Read more at Agrimoney

THERE is no doubting that a significant percentage of the increase in Net Farm Income UK farmers have benefited from is attributed to the weakness of sterling against the Euro.

This has led to higher farm gate prices for farmers, who along with the food and drinks manufacturers have greatly contributed to the national balance of payments through higher levels of exports due to the weak pound.

As I sit in the kitchen preparing the 2012 budget to show my bank manager, the uncertainties surrounding the euro and whether the Greeks can actually survive within the euro are a great concern.

Any failure would have serious implications to my own business and the whole of UK agriculture.

Should the pound strengthen against the euro, to the levels we had ten years ago, our exports would be uncompetitive and farm gate prices would drop along with the single farm payment paid to ourselves from Europe.

It is an unfortunate fact that the majority of farms both in the UK and Europe are still reliant on this payment to remain in profit, six years after reforms were introduced to scrap production subsidies.

A proportion of the money paid to farmers is now used to provide rural development grants and also to fund environmental schemes on our farms and these have been successful in their objectives.

Read more at Horncastle News

The jump in British farmland prices to a record high disguises the emergence of a two-tier market, as persistent drought encourages growers to prize water-retaining land which has historically traded at a discount.

Farmland values rose 11% to £6,514 last year, an increase “driven almost entirely by commercial farmers”, the Royal Institution of Chartered Surveyors said, forecasting further gains to come.

“Surveyors expect the current trend to continue - ie strength in the commercial farmland sector,” Rics said.

However, the market overview hides growing concerns over water which are driving buyers to bid up heavy soils which have historically been overlooked, Andrew Pearce, head of rural agency at property consultancy Chesterton Humberts, said.

Read more at Agrimoney

The drought that began in the south end of last year caused a drop in fertilizer sales . While the domestic market was hot earlier this year in Rio Grande do Sul, the industry felt the impact caused by losses in crops. Last year, the country had record sales, with over 28 million tonnes delivered to farmers. The number means an increase of 15.5% over 2010. The consumption was also highest in the state with 3.3 million tons and 6.5% growth. According to the president of the Fertilizer Industry Union of Rio Grande do Sul (Siargs) Torvaldo Marzolla Son, the situation began to change in January, due to the drought affecting crops.

- We started the year perceived a weakness in deliveries, which was a decrease of 12.6% in January 2012 compared to January 2011. We deliver 87,100 tons in January this year compared with almost 100,000 tonnes in January 2011 - says.

The national average was 8.5% increase in sales.

- Thank God, in Brazil, there was a large growth of fertilizer, this technology. In Rio Grande do Sul, are suffering. We are praying for this to go up soon, this La Nina effect. And that is not as big a problem as we had in the past for a long time - points.

Photo: Lauro Alves

Farmers in drought-stricken areas of the country are facing crucial decisions in the next few days and weeks over what to grow this year – and their plans could mean rising food prices for hard-pressed consumers this summer.

Most of the south-east of England was officially declared to be in drought last week, and large swaths of the Midlands and south of England were confirmed as “at risk”, with hosepipe bans and other restrictions likely to be introduced soon.

Farmers in the south and Midlands are having to make tough decisions as spring approaches. Photograph: Colin Underhill/Alamy

Farmers are particularly at risk as the spring growing period approaches. Soil moisture in the key agricultural region of East Anglia has reached a record low, and many farmers have had their licences to take water from rivers and underground sources curbed. Some key crops – such as potatoes, carrots, onions and lettuce – require much more water than alternatives, and farmers must sow the seeds for many of these staples within days or weeks.

Read more at The Guardian

The CLA today (20 February) called on the Government to ensure agriculture is given priority for scarce water resources to prevent food shortage.

Taking part in Defra’s drought summit to discuss areas hit by continued low winter rainfall, the Association demanded a fairer allocation of water for farmers across all drought-affected areas in England.

CLA President Harry Cotterell said: “Agriculture is under incredible pressure as a result of the lack of rain through the winter. Other sectors have statutory powers and priority over agriculture, but to ensure food and environmental security it is vital we are given our fair share of water.

“The Government needs to think about extending permitted development rights to build on-farm reservoirs. This could make a real difference during any drought, particularly using flexible abstraction licenses to allow efficient recharge of reservoirs.

“Our members in the Eastern region are seriously concerned about the potential for drought this summer. We are pleased the Secretary of State is trying to address the issue at this early stage but it is absolutely essential that farmers get a fairer allocation of water now.”

Mr Cotterell added: “The CLA has been working with Defra and the Environment Agency to reduce the impact of current water resource issues on farmers and land managers who must be encouraged to capture and use water more efficiently. They also need to be supported and rewarded for delivering and managing sustainable water supplies.

“The monthly drought reports from the Environment Agency have been very helpful and we are pleased it is going to work more closely with water companies to develop water transfer schemes.”

Drought has distorted the US far, market, with the quest for water boosting price growth in land blessed by ready rains, or possessing irrigation, far higher than that in non-watered fields.

Farmland values in key central-US agricultural areas, including Kansas, the top wheat-growing state, ended last year at a record high, with cropping land appreciating particularly fast, by 25% year on year, central bank data showed.

However, the overall rise, attributed to “strong” farm profits, concealed a marked gap in performance between farms in Nebraska, which received relatively plentiful rain last year, and Oklahoma, which suffered a record-breaking drought.

“Drought clipped farm incomes in Oklahoma and Kansas,” the US Federal Reserve’s Kansas City bank said.

Read more at Agrimoney