Shares in Yara International touched their highest for two years after the fertilizer giant forecast it could be on track for record earnings, as high crop prices stimulate demand for nutrients at a time of constrained capacity.

The Norwegian group, the world's biggest nitrogen company, said that its earnings per share could reach NOK47 if urea margins, currently above $100 a tonne, are driven by high demand to $150 a tonne.

Analysts are expecting Yara's underlying earnings per share to remain below NOK30 until at least 2014, according to a ThomsonReuters poll.

"Continued growth in food demand, and the need for improved agricultural productivity, increase the probability of a continued tight fertilizer market," the group said.

Indeed, all nitrogen capacity was already being utilised outside China, where production curtailments have been introduced to save energy.

Back to the future

A return to a low-demand market, where costs of production were the key dynamic, would see Yara's earnings per share fall to NOK18 – still more than twice those achieved in 2009, where farmers scrimped on fertilizer to save cash in the face of tumbling crop prices.

However, Jorgen Ole Haslestad, the Yara chief executive, stressed the "strong" pick-up in fertilizer demand in the autumn, spurred by higher crop prices, and the potential for resilient nutrient consumption at a time of "tight" supplies.

"More and better use of fertilizer will be a vital contributor in the quest for a sustainable improvement in agricultural productivity," he said.

"The root cause of the 2007-08 tight food market never went away. The demand side continues to grow strongly and steadily [and]... with a weaker 2010 harvest the global agricultural situation looks tight again."

Appetite for deals

Mr Haslestad added that Yara's loss to rival CF Industries in the battle to acquire US nitrogen group Terra Industries earlier this year had not dispelled the Norwegian group's appetite for takeovers.

"The nitrogen industry is fragmented, giving consolidation opportunities. Yara will continue to take advantage of its global presence and number one position in the nitrogen industry to take a major role in this consolidation.

Yara is constantly looking for investment opportunities creating value. The price will eventually decide if a project is good or not, and we have historically proven our dedication to this philosophy by walking away from deals - Terra Industries being one example."

The exception to Yara's ambitions was in China, the biggest urea producer, where the industry was "very fragmented" but also suffered a "not transparent" cost structure, the group said.

Yara shares touched NOK331.80 in early deals in Oslo, their highest since September 2008, before retreating to stand at NOK329.00, up 1.6% on the day.