Fertilizer Markets and Finance

Normal monsoon means there will be timely sowing of summer crops, which can lead to higher use of fertilizers

South African wheat futures rose for a third day as global prices climbed on concern that cold weather in Russia and a persistent drought in the U.S. will curb global supplies.

Wheat for March delivery, the most active contract, increased 0.4 percent to 3,644.20 rand ($412) a metric ton by the close on the South African Futures Exchange in Johannesburg.

Wheat climbed to a one-month high on the Chicago Board of trade as winter-kill caused by freezing temperatures affected 9 percent of the 15.7 million hectares (38.8 million acres) sown with winter grains in Russia, the Agriculture Ministry said yesterday. Drought may persist in the U.S. Great Plains and spread across Texas in the next three months, according to the Climate Prediction Center.

“We are following the international prices as they are up today on concern of dry weather,” Brink van Wyk, a trader at BVG (Pty) Ltd., said by phone from Pretoria.

South Africa is a net importer of wheat and sub-Saharan Africa’s largest producer after Ethiopia. The country imported 30,972 tons of the grain in the week to Jan. 18, Pretoria-based South African Grain Information Service said in a statement on its website today.

White corn gained 1.1 percent to 2,227 rand a ton, while the yellow variety increased 1.1 percent 2,146 rand a ton.

To contact the reporter on this story: Tshepiso Mokhema in Johannesburg attmokhema@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

OAO Uralkali, the world’s largest potash producer by output, will seek to maintain prices as it prepares to sign contracts with India and China and global droughts impoverish the soil, said Chief Executive Officer Vladislav Baumgertner.

“We will do our best to protect the current prices,” Baumgertner said in an interview at Bloomberg headquarters in New York yesterday. “We see a stable price environment in key markets this year.”

Dry weather in countries including the U.S., Australia and Russia this year has left soil parched, damaging crops. Potash, a form of potassium, is used by farmers to strengthen stalks and roots and help plants fight disease.

Uralkali jumped 2.9 percent to $42.18 by 1:12 p.m. in London, heading for the highest close since July 20. The shares rose 0.8 percent to 259.22 rubles in Moscow, extending its gain this year to 11 percent. The ruble-denominated Micex (INDEXCF) benchmark stock index has gained more than 9 percent in 2012.

Uralkali will probably sign a new contract with China by November and a new contract with India “immediately after that,” he said. Belarusian Potash Co., a trader part owned by Uralkali, has held the potash price for China at $470 a metric ton since the second half of 2011, and for India at $490 a ton since August 2011.

Read more at Bloomberg

Eastern Australia, rather than the west, may end up being the centre of concern over Australian wheat prospects, after official meteorologists raised chances of dry weather in states such as New South Wales.

Western Australia, Australia’s top grain-growing state, has been the focus of crop fears so far, after the driest July on record, which prompted a caution from Australia & New Zealand Bank that wheat production may near-halve this year from last season’s bumper levels.

However, weather forecasts from the Bureau of Meteorology on Wednesday “suggest cop conditions in three months could be quite different to those observed today”, Commonwealth Bank of Australia analyst Luke Mathews said.

While the bank cut by 1m tonnes, to 24m tonnes, its forecast for the Australian 2011-12 wheat harvest, putting a 19% decline from last season on the cards, the downgrade was spread between east coast states and Western Australia.

 Rain outlook

The bureau forecast a 60-75% chance of below-normal rainfall over most of southern South Australia, southern New South Wales and Victoria over the next three months, besides in parts of Queensland, where dryness will be welcomed as a help for the sugar cane harvest.

CBA forecasts for Australian wheat output 2012-13 and (change on year)

New South Wales: 7.52m tonnes, (-5.1%)

Queensland: 1.48m tonnes, (-3.5%)

South Australia: 1.48m tonnes, (-16.9%)

Tasmania: 31,000 tonnes, (+3.3%)

Victoria: 3.17m tonnes, (-16.8%)

Western Australia: 7.49m tonnes, (-36%)

Total: 23.95m tonnes, (-18.9%)

The forecast tallies with the increasing likelihood of an El Nino, which is linked to east coast dryness.

However, for Western Australia, where El Nino correlations are looser, the bureau forecast a 70% chance of above-normal rains.

“The outlook implies yield prospects in Western Australia may improve, while east coast and South Australia crops may deteriorate,” Mr Mathews said.

Western Australia wheat crops “still have the potential to achieve average-to-above average yields. However, perfect seasonal conditions are required for the remainder of the season.”

Read more at Agrimoney

Astarta Holding cut hopes for grains harvest, and lopped 20% from its hopes for sugar beet output, as the Ukrainian farming giant revealed it had fallen foul of the “negative” weather which has dented national yields.

The dairy-to-soybean processing group, which this season sowed crops on 236,000 hectares, cut by 100,000 tonnes to 600,000 tonnes its forecast for it grain and oilseed harvests.

Wheat yields, at “approximately” 4 tonnes per hectare, had fallen by nearly 11% year on year, although they remain higher than the national average, pegged by Ukraine’s farm ministry two weeks ago at 2.90 tonnes per hectare, a decline of 15.7%.

For sugar beet, Astarta, Ukraine’s top sugar producer, cut its forecast for the crop by 500,000 tonnes to 2m tonnes.

‘Extremely dry and hot’

The downgrades reflected weather that was “negative” for the group’s farmers in eastern Ukraine, “as the summer months of June and July were extremely dry and hot.

“Drought in eastern and southern Ukraine affected the harvest in our fields in the Poltava and Kharkiv regions.”

The comments follow a second drought-hit season for Black Sea grain production in three years, with Ukraine’s wheat harvest estimated by the country’s farm ministry at falling 27% to 16.3m tonnes.

Read more at Agrimoney

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

Cocoa speculators are bracing for what many investors fear be the worst set of processing data since the world financial crisis to see if their brighter call on the bean is justified.

Speculators have covered a mass of short positions in cocoa futures and options, turning net long last week in New York-traded contracts, to their highest level since September, regulatory data this week showed.

In London, speculators’ net short position - meaning short bets, which benefit when prices fall, exceed long holdings which profit when values rise – fell below 7,000 lots to its lowest in a year.

The moves - which have helped cocoa futures stabilise in New York and maintain a slow recovery in London from a December low, helped also by a weaker pound – have been encouraged by growing concerns for West African crops.

‘Fears of fungal diseases’

“High humidity levels in key growing areas are fuelling fears of fungal diseases,” Commerzbank said, noting fears that Nigerian yields could fall 30%.

Read more at Agrimoney

Pessimism among Australian growers, stoked by unsettling dryness heading into winter, has reversed, with many turned “wildly bullish” by higher grain prices, and enjoying improved rains too.

The revival in Australian grain prices - which reached Aus$291 a tonne in Sydney this week for January delivery, up more than 20% over the last month - is “offering growers an unprecedented chance to take advantage of some very healthy margins this year”, National Australia Bank said.

Prices, which on a swap basis had reached Aus$280-330 a tonne, “can have an excellent return on investment”, the bank added, noting “wildly bullish” sentiment among “farmers across the country”.

Indeed, many growers have already cashed in on the higher prices, with Rabobank noting that the rally had already “created significant interest in mid-year marketing opportunities”.

‘Biggest July rain in decades’

Rabobank’s comments came as it downgraded, by 1.5m tonnes to 24.5m tonnes, its forecast for this year’s Australian wheat crop, following dry weather in many areas in, particularly, May.

Read more at Agrimoney

The floods which struck southern Russia at the weekend, killing at least 171 people, may have damaged stored as well as unharvested grains, with concerns centring on one of two giant silos at the port of Novorossiisk.

Officials and analysts were still on Monday attempting to gauge the degree of damage to standing crops in southern Russia from the floods, which followed rains on Friday night which dumped 11 inches on some areas.

One early account relayed to Agrimoney.com spoke of damage to sunflower fields, in the Krasnodar area where dryness had been a concern, although Sovecon reported market talk that “it looks like the flood hasn’t affected any significant acreage”.

“People are talking about 10,000-20,000 hectares max,” including sunflowers and other crops as well as wheat, Andrey Sizov, the Moscow-based consultancy’s managing director, told Agrimoney.com

Port problems?

However, Rory Deverell at broker FCStone flagged that the flooding “may have affected already harvested winter wheat where storage terminals were flooded as well as the remaining unharvested winter crops as well as the corn and sunflower crops”.

Concerns centre in particular on Novorossiisk, the site of Russia’s biggest port for handling grain, and oil, exports, and where authorities at the local town declared a state of emergency after receiving 100mm of rainfall in two days.

Read more at Agrimoney

Corn and soybeans deteriorated far more significantly than the market had expected as damage from the heatwave spread into northern areas where producers had held out hopes of decent harvests.

The proportion of US corn rated in “good” or “excellent” health fell by eight points to 48% in the week to Sunday, the US Department of Agriculture said.

The figure was above the five-point decline that investors had expected, and compared with a 69% reading a year ago.

For soybeans, the proportion seen good or excellent tumbled by eight points to 45%, again more than investors had expected, and below a year-before rating of 66%.

‘Yields are in jeopardy’

The decline reflected more of the hot and dry weather which left most Midwest corn farms with a moisture deficit of two-to-three inches in June alone, according to Gail Martell at Martell Crop Projections.

Selected corn crop condition by state and (change on week)

Indiana: 19%, (-8 points)

Illinois: 26%, (-11 points)

Wisconsin: 50%, (-10 points)

North Dakota: 81%, (-10 points)

Minnesota: 82%, (-1 points)

National rating: 48%, (-8 points)
“Midwest June temperatures were 2-5 degrees Fahrenheit above average, keeping evaporation elevated and causing worse moisture stress. Corn yields are in jeopardy,” she said.

At Phillip Futures, Ker Chung Yang noted that last weekend “there was also wind and hail damage in parts of the eastern Corn Belt”.

And, indeed, crop condition continued to suffer in states such as Illinois, where the percentage of corn rated good or excellent dropped 11 points to 26% over the week, and Indiana, where the decline was of eight points to 19% - the worst reading since the drought year of 1988.

“Several areas of the state [Indiana] experienced record-setting heat during the week with temperatures reaching as high as 107 degrees Fahrenheit in some southern counties,” USDA officials said.

Read more at Agrimoney

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