US farms insulated on fertilizer credit – Agrium

05 November 2008 18:16  [Source: ICIS news]

HOUSTON (ICIS news)--Global credit restrictions would cut deeper into fertilizer consumption overseas than in the US, where farmers were in a relatively strong financial position, officials at Canada-based Agrium said on Wednesday.

Any decline in overseas crop production could conversely send a stronger signal to farmers in North America to invest in nitrogen-based nutrients ammonia and urea, the officials told analysts on a conference call.

"Grain fundamentals are extremely strong," an official said in a broadcast presentation.

Cash margins for US corn farmers - the heaviest ammonia users - were projected at $4.50/bushel (€3.47/bushel) for the 2009 harvest, up from $3.80/bushel currently and nearly double the 2002-2006 average of $2.37/bushel, the officials said.

The economic signal was less strong for soybeans, which use urea. Cash margins for soybeans were projected at $9.65/bushel in 2009, up from $9.27/bushel in 2008 and up from an average $6.14/bushel in 2002-2006.

One official noted reports that Brazilian corn production may fall by 20% due to the lack of access to finance.

While US fertilizer buyers did butt up against credit limits as fertilizer costs soared earlier this year, those issues have eased as nutrient prices have plunged.

"At this point, we believe our customers are quite healthy," an Agrium official said. "The vast majority will have record years...there's a lot of cash out in the agricultural community."

That relatively healthy financial state of US farmers should encourage a high level of pre-paid purchases of ammonia and other fertilizers, the officials said.

But the downward spiral in prices has so far prompted many farmers to hold back to wait for a bottom, the officials acknowledged.

The November delivered contract price for Tampa ammonia plunged $356/tonne - or 38% - to $575/tonne, according to global chemical market intelligence service ICIS pricing.

Farmers who do hold off making purchases run the risk of being caught in a distribution logjam in the spring planting season if there is a repeat of the wet weather that delayed the US crop this year, the officials warned.

Globally, the combination of the credit crunch and the drop in fertilizer prices could put on hold the new ammonia and other projects scheduled for the next three or four years, the officials said.

"With these low prices and economic uncertainty, we see new production being deferred," an official said. "That's a net positive from a supplier's point of view."

Earlier on Wednesday, Agrium reported a seven-fold increase in its third-quarter net profit to $367m.

($1 = €0.77)

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By: Stephen Burns
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