Prices climb as fertiliser famine looms

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SUPPLIES of fertiliser are extremely tight and look set to become even shorter with world demand exceeding production.

This time last year UK manufacturers had large stocks of ammonium nitrate (AN) in store and were working flat out using relatively cheap gas to build up stocks of fertilisers in advance. This year there are virtually no stocks of AN and gas is much more expensive.

Global nitrogen is currently in deficit, a situation that is unlikely to change for at least three years. There has been a recent increase in the price of AN and a further rise is forecast for May. The annual requirement for AN in the UK is in the region of two million tonnes, but following the closure of several plants, domestic production now meets for only 50 per cent of demand.

Calum Finlay of Gleadell, one of the leading companies trading in fertiliser and grain, said: "Imported AN is not arriving in any volume as the countries producing this material are now growing more crops and are keeping product for their own market, but also managing to sell any surplus they have elsewhere at a premium over UK prices.

"Granular urea (another major source of fertiliser] supply is also tight with demand from Asia and Latin America having a major impact on prices. This is not going to go away with current grain and maize prices where they are today close to record levels."

Russia is a huge producer of urea, AN and phosphates and from 1 April intends to impose an export tax on any fertiliser products.

Meanwhile, European arable farmers look set to produce a near-record harvest of wheat and barley, according to the Paris-based agency Strategie Grains. The latest forecast for wheat is 128.6 million tonnes, up from last year's 111.5 million tonnes, while the predicted yield of barley is 62.4 million tonnes – the 2007 figure was 57.6 million tonnes. These more optimistic forecasts follow relatively mild weather during February and early March.

Plantings of wheat in England are reckoned to be up by more than 10 per cent on the year, while in Scotland the area is set to hit a new record of 114,000 hectares.

There are two drivers for these increases: first, good conditions during the autumn and, second, the ending of set-aside. In England figures from the Department for Environment, Food and Rural Affairs suggest that the area of fallow land will fall by 39 per cent to 257,000 hectares. A similar trend is expected in Scotland, but the official data will not be available until later this week.

All the leading UK traders report that US markets have retreated from recent highs amid uncertainties on all fronts in the financial world.

The London futures for wheat has tended lower, with the November 2008 price sliding by 5 to 151 per tonne and January 2009 down by 3 to 142 per tonne.

Serious cereal growers in the UK should, according to most merchants, take steps to cover their intentions for the autumn months.

Sterling is now at a record low against the euro. Inputs, including fertilisers, chemicals and machinery, will be more expensive. Securing forward contracts for grain in euros could be advantageous.

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