Fertiliser supply shortage looms

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Publish time: 7th January, 2009      Source: www.cnchemicals.com
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January 7, 2009

   

Fertiliser supply shortage looms
   
   


If fertiliser purchases don''t pick up within the next month, the pipeline will be unable to move enough nutrients to the fields to provide crops with maximum yield capability, a leading phosphate producer said Tuesday (January 6).

   

   

But some signs of a thaw in fertiliser flow are emerging, said executives of Minnesota-based Mosaic Co. (MOS) in a fiscal second-quarter earnings call Tuesday.

   

   

"We are encouraged by the recent rally in grain prices and decoupling [from] oil," said Chief Executive and President Jim Prokopanko.

   

   

Higher grain and oilseed prices should provide farmers the necessary incentive to invest in the yield boost promised by agronomic fertiliser applications.

   

   

Dried up fertiliser demand as farmers watched crop prices tumble - exacerbated by a late harvest - has clogged the fertiliser chain, leading to production cutbacks and idled transportation in the distribution chain.

   

   

"It''s close to time when farmers have to go to fields...[they] have to start making their decisions and orders, " said Chief Financial Officer Larry Stranghoener.

   

   

Dealers must give back some of the profits they received last year as they move higher-priced inventory and blend it with new, lower-cost product and farmers have to either commit to purchases or forego ideal application rates, he added.

   

   

If farmers choose the latter, "you can be assured of less grain and there will be a market response in the months ahead," Stranghoener said.

   

   

Less than half production of available phosphate capacity is in operation and it can''t be turned back on within a day, Stranghoener said, adding important links in the supply chain, namely rail, are also idle.

   

   

"It''s a dangerous game of chicken," he said. "To get the product into place [the industry needs] 4-5 weeks to get this system working again or there will be less for farmers to put on the fields."

   

   

Mosaic''s latest results included an inventory valuation write-down of US$293.5 million, or 41 cents a share, and the company expects its remaining phosphate inventory to be sold at no gross margin.

   

   

For the quarter ended November 30, Mosaic reported net income of US$959.8 million, or US$2.15 a share, up from US$394 million, or 89 cents a share, a year earlier.

   

   

Revenue climbed 37 percent to US$3.01 billion.

   

   

Analysts'' estimates were for per-share earnings of US$1.42 on revenue of US$3 billion, according to a poll by Thomson Reuters.

   

   

Gross margin fell to 25.7 percent from 28.4 percent.

   

   

The average price for a common phosphate fertiliser during the quarter more than doubled though significantly lower prices are expected in future quarters. The price for a potash version tripled but was below Mosaic''s guidance range because of fewer high-priced spot sales in some locations.

   

   

Net sales in the phosphates business grew 50 percent, but profit fell 25 percent as higher selling prices were more than offset by a 46 percent decrease in sales volume, an inventory valuation write-down, higher raw material costs and net unrealized mark-to-market derivative losses of US$28.1 million.

   

   

In the potash segment, net sales more than doubled and earnings more than tripled because of higher selling prices despite a 15 percent decline in sales volume because of lower customer demand.

   

   

Made of phosphate rock often mixed with sulphur, phosphate is one of three major types of fertiliser, and Mosaic is one of the largest producers. The company also is one of North America''s largest producers of potash, another mineral used for nutrients.