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Opinion: N+P+K = formula for profit

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Pity the fertilizer salesman. No, really. Sure, he was raking it in a year ago when N, P or K shifted faster than he could say diammonium phosphate. When growers greedy for record crop commodity prices poured Canada-mined potash back into the ground quicker than anyone (without computer assistance) could spell Saskatchewan. Just look at Yara executives' swelling pay packets.

But now he could do an English degree with all the time he has on his hands. (When he's not sitting on them.) Farmers no longer want his wares. They're trying to justify the inventories piled up last year at premium prices by stretching them as far as possible. And he's finding it especially tricky to tempt customers back into the yard when manufacturers are intent on holding up prices rather than output volumes.

Last week, Norway's Yara, the world's biggest producer of nitrogen fertilizers, spoke for producers by extending output cuts of its leading brand. On Monday, the UK's Carr's Milling Industries spoke for the smaller suppliers by announcing a "substantial" fall in fertilizer sales.

Today, official US figures showed a 42% slump in fertilizer imports.

Global concern

This matters beyond the UK, or even Europe. Because if fertilizer sales are as soft across major producing countries as they appear to be – Uralkali, a European potash miner also turned gloomy last week – then growers aren't going to be harvesting anything as like as much per acre as they did last year. Farm stockpiles will only go so far

And that's going to have quite an impact on crop prices. Last week's data showing what crops US farmers, who ahve such an impact on world prices, intend to plant where showed one dimension of the 2009 arable production picture. But only one. The yields wrung from these acres is just as important.

Take wheat. The 58.6m acres US farmers are intending to drill to the grain would turn out at roughly 49m harvested acres in an average year. These would produce just short of 2bn bushels (53.9m tonnes) of wheat at last year's yield of 40.2m bushels per acre.

But of course, wheat yields aren't always that high. At the mere 35 bushels per acre farmers achieved in 2002, this year's US wheat harvest would come in at a little over 1.7bn bushels – some 260m bushels short. That's roughly equivalent to Australia's wheat exports last year.

For corn, compare last year's yields with those in the 2002, and you get a difference of more than 1.6bn bushels. That's equivalent to Argentina's exports in an average year. Even for soybeans, a more consistent crop, the output gap at last year's yield compared with that in soy's annus horribilis of 2003 comes in at 580m bushels. Argentina would do well to match that in a good year.

Nutrient factor

Of course, fertilizer applications doesn't account for all the difference between a good and bad year. Flood, drought and frost are some of the other ingredients in the mix.

But it's also plain that planting acreages aren't all that investors should get excited about. They should get a wire into the local fertilizer yard too.

And farmers should certainly spare a thought for the salesman of N, P and K. If the prices of his crops do recover, as markets now seem to be thinking, a little sympathy now might be repaid in spades when growers are once more clamouring for nutrients.

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