2023-12-18 16:46:20
© Reuters. Tractor in a field near Brasília 02/15/2022 REUTERS/Adriano Machado/Archivo
By Rod Nickel and Ana Mano and Sourasis Bose
SÃO PAULO (Reuters) – The drought in Brazil is delaying the purchase of fertilizers for planting the second crop, which is harming sales by global fertilizer suppliers in the country, which is the world’s largest cereal exporter and an important market for the companies, executives told Reuters.
The situation is a reflection of delays in planting corn, which precedes the sowing of so-called safrinha corn and which may delay or lead some producers to give up growing it at the beginning of next year.
This will likely affect fertilizer companies such as Nutrien, Mosaic and Yara, as cereal crops are among those that consume the most fertilizers.
The drought, related to the El Niño climate phenomenon, illustrates the volatility that global agriculture faces with the acceleration of climate change. Fertilizer companies are already dealing with lower profits as prices for agricultural commodities and fertilizers have fallen after peaking at the start of the war between Russia and Ukraine.
Brazilian producers generally plant less corn when they realize that they will miss the ideal planting window, in January or February, which reduces the demand for fertilizers.
Mosaic, a US-based fertilizer producer, expects off-season corn production to fall 12%, or 12.7 million tonnes, exceeding the National Supply Company’s (Conab) view of a drop of 11.1 million tonnes compared to last year.
“I would say it’s a very plausible downside scenario given the delayed harvest, the current drought and the likelihood of the rains stopping before the off-season corn matures,” said Andy Jung, vice president of strategic and market analysis at Mosaic.
Mosaic’s crop decline estimate would reduce Brazilian demand for potash fertilizers by about 4%, or 500,000 tons, Jung said. This volume of potash is worth around 160 million dollars at current prices.
A loss of sales on this scale would not be financially relevant, as Mosaic could supply fertilizers to other countries, Jung said. However, in a worst-case scenario, the off-season corn harvest would fall by 25 million tonnes, or about a quarter, he added.
As of early December, producers had purchased just 60% of their estimated fertilizer needs in the corn-producing states of Paraná and Mato Grosso do Sul, compared with 80% normally at this time of year, said Guilherme Schmitz, director of development. market share of Yara’s Brazilian unit, based in Oslo.
Off-season corn represents around 75% of Brazil’s national corn production, depending on the year.
“The combination of low crop prices and uncertainty about the weather means that producers are only really buying their off-season inputs when needed,” said Jason Newton, chief economist at Canadian fertilizer company Nutrien.
Brazilian potash prices have fallen to around $325 per ton, a 36% drop from the previous year, according to RBC, illustrating weak demand.
However, Brazilian potash imports for the full year are expected to be record highs, based on previous robust shipments, although some of these imports could sit in retailers’ warehouses if farmers buy less.
Although industry executives have pointed out a delay in fertilizer sales for the next corn harvest, fertilizer deliveries to farmers in the country have accumulated an increase of more than 10% between January and September, with producers reinforcing soil nutrition after harvests. Applications plummeted last year when record fertilizer prices limited purchases.
OTHER INPUTS
The drought also forced agricultural chemical producers FMC and Corteva to sell their inventories in Brazil at a discount due to lower-than-expected demand, said Morningstar analyst Seth Goldstein.
The two companies may need to reduce production as increased global demand for chemicals may not fully offset lost sales in Brazil, he said.
“Without a doubt (the drought) could bring a reduction in the use of technology, including fertilizers, and a reduction in costs to make the harvest viable,” said Fernando Cadore, president of Aprosoja in Mato Grosso.
FMC and Corteva did not respond to requests for comment.
Reduced Brazilian corn production could revive global prices and encourage American farmers next year to buy more fertilizer to maximize their corn production, offsetting lost sales in Brazil, Mosaic’s Jung said.
However, early forecasts suggest that US farmers will prioritize planting soybeans, a crop that needs relatively little fertilizer.
(Reporting by Rod Nickel in Winnipeg, Manitoba, Ana Mano in São Paulo and Sourasis Bose in Bengaluru)
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