Global Fertilizer Outlook - 4

By Alastair Stewart
DTN South America Correspondent

SAO PAULO, Brazil (DTN) -- For Brazilian farmers, 2015 has been a year of tension.

Economic instability caused credit to contract dramatically, while instability of the Brazilian real made it difficult to plan the 2015-16 season.

This scenario prompted farmers to hold off fertilizer purchases in the first half of the year, leading analysts to forecast shipments to Brazil could fall by as much as 20%.

In the end, things weren't as bad as most feared as a dramatic devaluation of the Brazilian real in the third quarter pushed margins for planting soybeans into positive territory and spurred a late fertilizer-buying spree.

As a result, most now expect demand to fall by a small amount, by around 3% instead of 5% previously estimated, said David Roquetti, executive director at Brazilian Fertilizer Distributors Association (ANDA).

In the first 10 months of 2015, fertilizer deliveries totaled 25.7 million metric tons, which is down 6.4% on last year but much better than the 12% drop registered in the first five months of the year. This will occur despite projected increases in soybean, second-crop corn and sugarcane areas.

The late rush for fertilizers could have caused logistical problems. Brazilian ports did see fertilizer imports jump dramatically in August, September and October but transport systems coped, partly because distributors already had substantial inventories and there have been no reports of shortages in the grain regions.

Still, grain farmers will use less fertilizer than in previous years.

That's understandable when you take into account that local fertilizer prices were on average 13% higher in Mato Grosso during October compared with the year before, due principally to a 33% decline of the real against the dollar in the same period.

Added to that, farmers didn't have spare funds to buy fertilizer following the sharp contraction of the availability of credit. Many resolved this problem by resorting to swap or barter deals to obtain fertilizers, a widespread practice in the past that had declined in recent years as farmers had more capital.

The terms of these deals highlight just how much the devaluation of the real benefited local farmers; while fertilizers prices increased, local soybean prices jumped even more.

The package of inputs for soybean planting, including seed, fertilizers and chemicals, was swapped for the future delivery of 28 60-kilogram bags per hectare (25 bushels per acre) in Mato Grosso in September 2014. The same package cost just 26 bags per hectare (23 bpa) in September 2015 despite much lower international soybean prices.

As long as the weather cooperates, the lower level of applications should not affect Brazilian soybeans, said Marcos Rubin, grain analyst at Agroconsult, a local farm consultancy.

"Crops have been well-fertilized for a number of years and so farmers can use reserves in the soil," noted Rubin.

With Brazil's economic outlook so unstable, it is difficult to know what will happen in 2016. However, soybeans and second-crop corn-planted areas are growing and decent margins are forecast for all those crops in upcoming seasons. As such, Brazilian demand will likely resume its historical growth trend in 2016, industry analysts say. Also, inventories will be tighter after the late-season sales in 2015.

Brazil is the world's No. 4 market for fertilizers and imports approximately 70% of its needs.

Last decade's plans to bolster domestic fertilizer production and reduce import dependency have been quietly put on hold amid depressed international prices and a scandal-induced debt crisis at Petrobras, the state oil company.

Alastair Stewart can be reached at alastair.stewart@dtn.com

Follow him on Twitter @astewartbrazil

(ES/CZ)

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