09 August 2010 23:18 [Source: ICIS news]
By Frank Zaworski
HOUSTON (ICIS)--A severe drought that is crippling wheat production in Russia and elsewhere around the Black Sea could increase demand for nitrogen fertilizers as higher crop prices encourage US farmers to grow more wheat, sources said on Monday.
The short supply is strengthening wheat prices and creating an economic incentive for US growers to plant available acres to wheat and apply healthy volumes of nitrogen, phosphorus and potassium, a fertilizer industry source said.
As it is, the demand outlook for nitrogen is already strong , the source said.
The severity of the drought in Europe and Asia reached prominence last week when Russia, the world’s third largest wheat producer behind the US and Canada, announced it would stop exporting the grain on 15 August for the remainder of 2010.
Russia said it may adjust the ban according to the size of its wheat harvest, which is now underway.
Grain marketers were concerned that other countries such as Belarus, Ukraine and Kazakhstan could also halt wheat exports as they too are suffering from the widespread drought that is also reaching across Europe and Asia from England to China.
Combined production in 12 states of the former Soviet Union will fall 20% this year, said market analysts at Informa Economics.
Other estimates of the loss of wheat production from the region have ranged from 21% to 25%.
The drought in the region was also taking a big toll on corn, barley and other crops.
Weekly US export sales of wheat have already increased and were seen as a sign that buyers would increase purchases from other countries such as Australia and Argentina.
But dry weather has caused poor growing conditions in Western Australia, and a developing La Nina weather pattern in the Pacific Ocean signals lower wheat yields in Argentina, market watchers at Rabobank said on Friday.
The pessimistic crop reports add up to more incentive for US growers to plant more wheat for harvest next year.
“The outlook for nitrogen and phosphate fertilizers is favourable and, weather permitting, the fall fertilizer season is expected to be strong due to an early harvest, anticipation of another large corn planting in 2011 and increasing application rates,” CF chairman and chief executive Stephen Wilson said last week.
“Global grain prices in Russia and Europe will continue high, strengthening the demand environment for fertilizers,” Wilson said.
CF predicted that ammonia shipments this autumn would be up 9% from the same period last year.
"At this point, we expect upward momentum in nitrogen to be sustained by the combination of low inventories, seasonal supply outages, solid demand, both domestically and internationally, and favourable relationships between natural gas prices in North American and other world markets,” Wilson said.
Minnesota-based Mosaic, the leading phosphate fertilizer maker, also predicted that upcoming fertilizer applications would be strong.
“Global phosphate shipments are projected to climb to 54m-56m tonnes in calendar 2010 and 55m to 57m tonnes in calendar 2011,” said Mosaic chief executive Jim Prokopanko recently.
Key growth regions for phosphates, he said, include India, Brazil and Argentina.
Prokopanko said global potash shipments are projected to climb to 46m to 48m tonnes in calendar 2010 and to further increase to 52m to 54m tonnes in 2011.
Imports by Brazil, China, India and other Asian regions are expected to drive the increase in potash demand. Brazilian shipments are estimated to be over 6m tonnes in 2010 while China's imports are estimated to be in the 5.5m-tonne range.
India's appetite for potash is expected to rebound to 5.8m tonnes in 2010, Mosaic said.For more on nitrogen fertilizers visit ICIS pricing fertilizers
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