Phosphate and potash demand is set to rise, even if agricultural commodity prices remain suppressed, a Mosaic executive told investors.
Corrine Ricard, senior vice president at the US potash and phosphate producer The Mosaic Company, said that depleted inventories, both in the soil and in industry pipelines, would increase demand.
Ms Ricard said that that lower commodity potash and phosphate markets had worked their way through to retail fertilizer pricing.
"This, combined with the large crops, which have led to a meaningful drawdown in the nutrient levels in the soil, have resulted in farmers increasing application rates," Ms Ricard said.
"This may sound counterintuitive given corn, soybean and wheat prices are at a lower level, but it's indicative of the sentiment of the industry which we share that potash and phosphate prices have bottomed."
Mosaic forecast global phosphate demand to grow by 11% over the next five years, with the biggest increases in India and Brazil.
Global potash demand was forecast to rise by 17% over the same period.
Ms Ricard also noted that since 2014, pipeline inventories have been falling as fertilizer dealers avoid holding inventory, given the downtrend in the market.
"So today, channel inventories are at very low levels in many areas of the world, North America, Brazil, India, to a lesser extent, in China," Ms Ricard said.
"So we expect shipments to be strong even without a big rally in grain prices."
Phosphate markets will get a boost from tight Chinese production, Mosaic said.
"We believe Chinese exports will drop again in 2017 to around 8m metric tonnes from a high point of over 11.5m metric tonnes approximately 2 years ago," Ms Ricard said.
"If the decline is more significant than these predictions, we could see an extremely tight phosphate market."
Chinese phosphate imports are falling, due to more stringent pollution laws in China, Ms Ricard said.
"Air and water quality have become major social issues in China, and we're seeing the government take enforcement action, in some cases shutting down the heaviest polluters, including a number of coal-based phosphate production-related facilities."
Increased regulations, to come in this year, will increase the average cost of production.
"These changes may also push the higher cost producers out over time," Ms Ricard said.
"How much higher, and exactly when the industry margins will be impacted, is difficult to predict, but this is an important development to keep an eye on and, potentially, game-changing impact on global phosphate supplies."
There is also room for further price-appreciation in potash, Ms Ricard said, as currencies in the former Soviet Union bounce back, increasing headwinds for producers in those countries.
Ms Ricard also so prices potentially supported by smaller-than-expected capacity increases, the shrinking of existing capacity during the low-prices of the past couple of years, and "very strong" demand.
"One thing we're fairly confident of is that there's more upside for potash prices than down," Ms Ricard said.
By William Clarke