A stand-off in farm spending identified following September's crop price tumbles will prove "temporary", Credit Suisse said, lifting its estimates for fertilizer prices and for shares in some nutrient groups.

The bank acknowledged that the price correction had instilled a "degree of caution" into the agriculture sector, noting that "nitrogen demand in the West has fallen off".

However, "slow demand" in nutrients will be short-lived, given low inventory levels in the fertilizer supply chains and farm profit prospects which were "still looking good".

"Current soft demand in the West is simply demand deferral rather than demand destruction," the bank said, adding that it expected orders to "pick up during the current quarter and remain strong through the first quarter 2012".

Supply hiccups

Indeed, the bank softened forecasts for declines in prices of urea, a major nitrogen fertilizer, and phosphate nutrients next year and in 2013.

Expectations for rising supplies for both fertilizer types had been cut by delays to new manufacturing plants, with Saudi Arabia's Ma'aden phosphate plant now not set to reach full output until early 2012, and US-based Mosaic to import phosphate rock next year if it cannot resolve an environmental dispute which has shut capacity at its South Meade mine in Florida.

"This [South Meade] supply uncertainty is likely to keep the market tight and diammonium phosphate prices high," Credit Suisse said.

Some new nitrogen projects, such as Qatar's Qafco V plant and Algeria's Sofert site, have also beenb delayed.

Meanwhile, a "restrictive" stance by China towards urea and phosphate supplies is also limiting international supplies.

'Tight market'

For potash, Credit Suisse lifted expectations of price rises, given supply limitations, with most miners running at full tilt, and limited new production capacity expected to open over the next two to three years, "which should keep the market tight over this period".

"Recently announced price increases have been holding," helped by a "lean" supply chain and "pent-up demand" in India, which held off until August striking a deal for potash imports in hope of the market turning downward.

Indeed, limited supplies mean international potash prices are likely to "close the gap" with those announced for the US in the current quarter of $590 a short ton, up $30 a short ton.

"We don't see increased imports coming into the US like last year. Most producers are simply sold out and have large volume commitments to other regions like China and India."

 'Attractively valued shares'

The comments came as Credit Suisse, which last month said the sell-off in fertilizer shares was overdone, restated enthusiasm for the sector, which it said had been unfairly punished in underperforming broader world stocks last month.

"The sharp sell-off is an opportunity to pick up attractively valued shares in a sector where we believe the risk to street earnings estimates remain biased to the upside," the bank said.

"We recommend investors take advantage of the sell-off to build a position in the sector."

While it lowered price forecasts for stock in many fertilizer groups, reflecting the increased risk now being placed on share investments, it maintained "outperform" ratings on most.

Price targets for shares in London-listed PhosAgro, Russian peer Uralkali and Saudi Arabian Mining were raised.