Crop markets may face 2008-style 'food crisis'

The dynamics of the crops market may be about to return to those which sparked the 2008 price spike, K+S has said, warning of the potential for the biggest production deficit in 30 years.

Assumptions that production will remain high next year "could rapidly prove to be too optimistic" given the help from good weather in boosting harvests in 2009, and the potential for lower prices to prompt farmers to cut sowings.

Even assuming a return to average plantings and yields, and typical growth in demand, global crop production would be set for "the largest shortfall registered in the last 30 years", the fertilizer group said.

This would cause a "corresponding sharp fall" in grain stocks.

"Parallels with the frequently cited food crisis of 2008 would be the logical consequence," the German group said, adding that such thinking may be behind the rally in crop prices over the last two months.

The statement came shortly before Strategie Grains, the Paris-based analysis group, forecast a fall of more than 1m hectares in European cereal plantings.

Potash forecast cut 

K+S made the comments as it unveiled a fall to an underlying loss of E2.3m in the July-to-September quarter, compared with earnings of E358.1m a year before, thanks to "continued very low demand" for fertilizers.

Up and downs of European Union cereals plantings, by harvest year

2010: 57.0m hectares

2009: 58.0m hectares

2008: 59.8m hectares

2007: 56.3m hectares

Source: Strategie Grains

The market would remain weak for the rest of the year, the German group said, cutting its forecast for global potash demand for a second time by 10m tonnes, this time to 30m tonnes.

"Further cutbacks [in global production] are to be expected in the light of continued weak demand this year," K+S said.

It pegged demand next year at 45m tonnes a figure which, while implying a 50% rebound, is lower than the 50m tonnes forecast by Canada's PotashCorp, the sector leader.

'Purchasing restraint'

In the third quarter, K+S's potash division reported an 88% slump to E54.0m in profits on revenues down 55% at E340.8m.

Global potash demand, according to K+S

2010: 45m tonnes

2009: 30m tonnes

2008: 54.8m tonnes

"Demand for potash fertilizers remained weak, especially on European and North American markets," the group said, adding that the continued failure of producers to strike a deal with China, the world's biggest importer, had provoked consumer uncertainty and "purchasing restraint".

"The trade sector has been seeking to keep inventories, which have now been largely depleted, as low as possible and to delay the stocking up which is normally customary at this time."

Nitrogen weakness

The nitrogen division reported a loss of E47.3m on revenues down 60% at E204.5m.

"Despite further significant price reductions, there was no significant increase in demand for complex fertilizers and ammonium sulphate, especially in Europe," K+S said.

"Only straight nitrogen fertilizers saw a continuation of the pickup in demand that started at the end of June."

K+S shares stood 1.6% higher at E38.54 in early deals in Frankfurt.

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