UPDATE 2-Yara sees high food prices supporting fertiliser market

Fri Oct 19, 2012 7:42am EDT

* Q3 EBITDA ex-items NOK 4.19 bln vs 4.15 bln in poll

* Lower prices offset by higher sales volume

* Higher Chinese export tax Nov. 1 to impact prices

* Shares down 1.9 pct (Adds CEO's comment, further details, share price)

By Victoria Klesty

OSLO, Oct 19 (Reuters) - High food prices after a devastating drought will support global fertiliser markets even as European farmers continue to delay their purchases, top fertiliser firm Yara said.

World food prices remained high over the last quarter, increasing farmers' incentives to buy and use fertilisers, but cheaper Chinese products put pressure on prices of nitrogen-based fertilisers and dented Yara's profits despite higher output.

The Norwegian company however now expects the combination of less costly fertilisers and more expensive grain to boost farmers' margins and encourage them to apply more fertiliser in the upcoming season.

"Pre-buying incentives for the new season are significantly stronger than a year ago," it said in a statement on Friday.

Yara's core European market is, however, likely to see farmers again delay their purchases ahead of the main fertiliser application season, Chief Executive Joergen Haslestad said.

"Despite increased grain prices and improved farm margins, buyers in Europe remain cautious, partly influenced by the negative macroeconomic environment," Yara said.

The company said its average realised prices were lower in the third quarter for all main product groups but deliveries were up 4 percent compared to a year earlier.

"Lower European nitrate deliveries were partly offset by strong nitrate sales growth in Brazil," Yara said.

WAITING GAME

How long European farmers can afford to put off purchases could be influenced by possible changes in global fertiliser prices due to an expected rise in Chinese export taxes.

Nitrogen fertiliser prices have declined from a year ago, with benchmark urea prices down 19 percent since October 2011, as Chinese export prices are now lower than last fall, when the effective Chinese export tax was at 110 percent compared to the current 10 percent.

"What we do know for sure (is) there will be a 110 percent tax regime from Nov. 1. How much (of Chinese exports) will be let in the next months to come is difficult to say, but it can have effect on urea price going forward," Haslestad said.

He told Reuters that while he did not want to speculate over future urea prices, he would be "very surprised" to see urea prices going down after Nov. 1.

World food prices continued to rise in September after the worst drought in more than 50 years in the United States sent corn and soybean prices to record highs over the summer, while a drought in Russia and other Black Sea exporting countries raised fears of a renewed crisis.

Food prices are seen remaining close to levels reached during the 2008 food crisis, the Food and Agriculture Organisation's (FAO) said earlier this month.

"Grain markets are extremely tight due to the drought in the US cornbelt and concern about the declining outlook for yields," Citi said in an analysis. "We believe prospects for 2013 are robust."

Yara on Friday reported adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), excluding one-off items, fell to 4.19 billion crowns ($744.54 million) in the third quarter from 4.21 billion in the year-ago period, while analysts had on average expected 4.15 billion.

Its shares were down 1.85 percent at 1124 GMT. (Additional reporting by Henrik Oliver Stolen; Editing by Hans-Juergen Peters)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.