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Heringer flags squeeze in Brazil's rebounding fertilizer market

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Fertilizantes Heringer flagged the tightening prospects in Brazil's fertilizer market, which faces further demand growth in the second half of 2016 – albeit not quite to record levels seen two years ago.

Deliveries of fertilizers to Brazilian buyers rose by 12.6% to a record 13.2m tonnes in the first half of 2016, according to data from industry group Anda, compared with a flat supply of imports, and a 2.2% drop in domestic production.

While combined imports and domestic production still exceeded deliveries by more than 800,000 tonnes during the half, the dynamics implied the potential for a supply drawdown during the second half of the year, a period which typically witnesses some 60% of demand.

"As a result" of the market's first half performance, "supply is lagging projected deliveries" for the July-to-December period.

Crop price boosts

Brazil's increased appetite for fertilizers in the second half of this year will be fuelled by a rise in sowings of corn, a nutrient-hungry crop, whose appeal to farmers has been boosted by a boost to prices from a weak safrinha crop, following an overenthusiastic 2015 export programme.

And sowings of grains overall will rise by 2.12m hectares to 221.98m hectares for 2016-17, according to consultancy Agroconsult.

However, Fertilizantes Heringer also flagged the boost to demand from cane growers, "given the substantial improvement in the earnings of the sugar and ethanol industry" fostered by higher prices of the sweetener.

And for coffee too, "growers' current profitability levels, as well as the excellent barter ratio, will certainly fuel consumption" in the July-to-December period, the group said.

Record high

The group forecast Brazilian fertilizer deliveries reaching some 19m tonnes in the second half of 2016, up from 18.5m tonnes in the same period of last year, -although below the 19.3m tonnes in the July-to-December period of 2014, when farmers accelerated purchases in expectation of weakness in the real.

A weaker real increases the price of imported goods, such as fertilizers, of which Brazil buys-in more than twice as much as it produces itself.

Nonetheless, second-half fertilizer deliveries of 19m tonnes would leave Brazil's total volumes for 2016 at 32.2m tonnes, matching the 2014 record high.

'Inventories are used up'

Fertilizantes Heringer's assessment of an improving market tallies with talk from groups such as Canada's PotashCorp, the Canadian potash giant, which two weeks ago said that "recovery… is evident in Brazil, where $5-10 per tonne price increases have recently taken hold".

And US-based Mosaic, which has a large South American operation, last week said that there had been a rise in potash prices in Brazil of "some $10, $20 up [a tonne] in the last couple of weeks", adding that "we expect that to continue as we get closer to their main planting season".

"Brazilian demand forecast just keep getting revised higher and higher, despite the chaotic political backdrop, volatile exchange rate and tight farm credit," said Mike Rahm, the Mosaic vice-president of market analysis.

"That is not a surprise given record high local currency prices for soybeans, corn, sugar, cotton and coffee."

Rich Mack, the Mosaic finance director, told investors that Brazilian buyers "can't defer [purchases] anymore.

"Inventories are used up. And so that's where we see some price momentum in Brazil, both for phosphates and potash."

Loss narrows

Fertilizantes Heringer's comments came as the group unveiled a narrowing of 10.8% to R$33.3m, in losses for the April-to-June period, typically a weak quarter for the company.

Sales dropped 19.8% to R$1.01bn, as the group's own sales volumes defied the overall market growth by tumbling 18.8%, thanks to a shift away from commodity fertilizers to higher-margin specialist nutrients.

Indeed, specialist fertilizers accounted for 52% of sales in the quarter up from 38% a year before.

By Mike Verdin

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