Short-term Outlook for the Brazilian Fertiliser Market

Fertiliser deliveries are expected to be slightly lower in 2017, despite projected area growth for Brazil´s main crops. The key drivers for this decline are narrowing margins for wheat and corn, and a return to normal levels of fertiliser delivery for second crop (safrinha) corn, after an unusual delivery pattern in 2016.

Seasonal demand to reduce demand by year-end

According to ANDA (Brazil´s National Fertilizer Association), fertiliser deliveries increased to 24.8m tonnes from January to September—that’s a 1.4% increase compared with same period last year. This was mainly driven by an increase of 2.4% in soybean area. 

Q4 2017 deliveries, however, will be negatively impacted by the return to normal seasonality of fertiliser demand for safrinha corn. In 2016, farmers purchased their fertiliser supplies early, receiving a good part of their requirement by the end of 2016. However, in today´s scenario of lower corn margins and a slow pace of soybean planting, farmers are postponing their decisions. 

Some farmers have not yet decided on the package of inputs they will adopt for the next safrinha crop. Soybean planting is running behind last year in most important areas and could push safrinha out of its ideal planting window. On top of that, the recent surge in fertiliser prices and lower corn prices are narrowing farmer margins. If the weather conditions cause more delays to farmers’ schedules or margins reduce even further, farmers are expected to reduce investments in crop, leading to a smaller fertiliser application.

Figure: Brazilian fertiliser market balance, 2016-2017

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Farming decisions and their implications

Brazilian fertiliser imports from January to September were 10% higher than the same period last year. Half of this additional volume was to compensate lower domestic production and higher demand for the period, but the other half went into inventories. By the end of September, the inventories were 16% higher than last year. The import pace usually slows down in Q4, but stocks are expected to remain at higher levels. 

As mentioned above, most of the deliveries of safrinha crop this season will materialise in January and February 2018. In addition, farmers are more willing to wait for weather definitions and margins to recover before finalising their purchases. 

A few questions arise in this context. Should the industry assume the risk and build up stocks for safrinha demand? Will demand be there by the beginning of 2018? If weather issues dissipate and farmer margins compensate higher investments, will farmers find fertilisers for prompt delivery? 

In Rabobank’s opinion, total safrinha corn demand will be 5% lower compared to last season. Farmers are carefully building stocks and are expected to adopt a lower fertiliser application. The industry is aware of delayed and lower demand and they will assume some risks to improve unsold stocks to guarantee the offer. The market will be tight (but feasible) as the industry does not foresee an upside scenario, which is supportive to prices. Stocks will not be well distributed around the country and domestic prices will decouple from the international market (mainly nitrogen). If farmer margins improve early next year and farmers decide to increase fertiliser application, they will potentially not have access to product, and prices are expected to increase even further.

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