Brazilian drought slows fertilizer purchases, affecting global suppliers

A severe drought in Brazil is causing a significant delay in fertilizer purchases by local farmers for the upcoming corn-planting season. This development is adversely impacting sales for major global fertilizer suppliers, such as Nutrien, Mosaic, and Yara, in what is the world’s leading corn-exporting nation, industry executives reported to Reuters.

The drought, linked to the El Niño climate phenomenon, has already pushed back Brazil’s soybean harvest. This delay is expected to subsequently postpone the main corn season, traditionally starting early in the following year. Corn, known for its high fertilizer demand, is likely to see reduced planting if the ideal window in January or February is missed.

This situation not only highlights the increasing volatility in global agriculture due to climate change but also compounds the challenges for fertilizer companies. These firms are already grappling with declining profits following the initial price surges at the onset of the Russia-Ukraine conflict.

Mosaic, a U.S.-based fertilizer producer, anticipates a significant decrease in Brazil’s “safrinha” corn production — the country’s second corn harvest. The company projects a 12% drop, amounting to 12.7 million metric tons, which exceeds the Brazilian government’s estimate of an 11.1 million ton reduction from last year. “The current dry conditions and the likely early end to rains could severely impact the safrinha corn’s maturity,” said Andy Jung, Mosaic’s vice president of market and strategic analysis.

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This estimated reduction in corn output could lead to a 4% decrease in Brazilian demand for potash fertilizer, approximately 500,000 tons, valued around $160 million at current rates. While a loss of this magnitude wouldn’t be financially critical for Mosaic, as it could divert sales to other countries, a worst-case scenario could see a more drastic 25 million ton drop in the safrinha corn harvest.

By early December, farmers in the corn-producing states of Parana and Mato Grosso do Sul had only acquired about 60% of their estimated fertilizer needs, compared to the usual 80% at this time of the year, reported Guilherme Schmitz, market development director at Yara’s Brazil unit.

Jason Newton, chief economist at Canadian fertilizer company Nutrien, noted that the combination of low crop prices and weather uncertainties has led farmers to adopt a just-in-time approach for safrinha crop inputs.

The impact is also evident in the Brazilian potash market, where prices have dropped to about $325 per metric ton, a 36% decrease year-over-year. While Brazil’s full-year potash imports are expected to hit record highs, based on robust early shipments, some of these imports might remain unsold in retailers’ warehouses if farmer purchases continue to lag.

Additionally, crop chemical producers FMC and Corteva have been compelled to offer discounts on their Brazilian stocks due to lower-than-expected demand, according to Morningstar analyst Seth Goldstein. Both companies might have to scale back production as rising global chemical demand might not fully compensate for the lost Brazilian sales.

Fernando Cadore, chief of the farmer group Aprosoja in Mato Grosso, emphasized that the drought could lead to reduced use of agricultural technologies, including fertilizers, to ensure viable harvests.

Mosaic’s Jung suggests that reduced Brazilian production might eventually revive global corn prices, potentially encouraging U.S. farmers to increase their fertilizer usage for corn production next year, thereby offsetting the Brazilian market downturn. However, early forecasts indicate a preference for soybean planting among U.S. farmers, a crop that requires significantly less fertilizer.

Source: Reuters