* Record crop seen for canola, which needs nitrogen
* Farmers had cut back on fertilizer last year
By Rod Nickel
WINNIPEG, Manitoba, May 5 (Reuters) - Canadian farmers are set to use more nitrogen fertilizer than they did last year as favorable growing conditions boost optimism and as they plant a record acreage of nutrient-needy canola, trade officials say.
Farmers balked at paying high fertilizer prices last year, which left Canadian retailers with costly inventory write-downs and weighed down earnings of producers like Potash Corp of Saskatchewan (POT.TO) (POT.N) and Agrium (AGU.TO) (AGU.N).
Global demand is seen recovering in 2010 largely because soils need replenishment.
In Canada, the world's No. 6 wheat producer and top canola exporter, optimism from warm April weather and timely rains make a rebound in fertilizer demand more likely, officials say.
"Because most of the country is out of the gate (planting crops) earlier, there's general optimism that this is the season to make your investments and, therefore, drive a stronger yield," said David MacKay, president and CEO of the Canadian Association of Agri-Retailers.
Nitrogen and phosphate are the most widely used crop fertilizers in Canada because potash is generally present in western soils. Spring and fall are the key times for applying fertilizer.
"(Spring demand) certainly is far improved over last year," MacKay said.
Farmers intend to plant a record 16.9 million acres of canola this spring, according to Statistics Canada. However, many traders and analysts think that area will be even bigger.
"I would think this year would allow people to get back to more normal fertilizer rates, at least for canola anyway." said John Mayko, senior agronomy specialist for the Canola Council of Canada.
Canola is a large user of nitrogen, but also requires more phosphate and potash than wheat, said David Asbridge, president of NPK Fertilizer Advisory Services.
"Fertilizer use in Canada should be fairly robust this year," he said. "A shift from wheat to canola will likely push fertilizer use higher as long as yields are comparable."
However, Ian Wishart, a Manitoba farmer and president of Keystone Agricultural Producers, sees overall demand static because farmers aren't pleased with either fertilizer costs or grain prices, which are sharply lower than a year ago.
Farmer demand for nitrogen is up slightly because of canola, he said, but increased plantings of pulse crops, which use little fertilizer, has held overall demand in check.
"Guys are being pretty cautious about how much they're applying, is the feel I get," Wishart said.
Potash and phosphate prices are lower than a year ago, while nitrogen prices vary depending on the source, Mayko said.
Retailers, who were stuck with large inventories of fertilizer after prices and demand slumped, are also taking a cautious approach by keeping supplies short this year, MacKay said.
Agrium, a fertilizer producer and retailer, said on Wednesday that a rebound in North American and international nutrient demand supported its wholesale business in the first quarter, while its retailers are seeing a strong spring for crop inputs. (Editing by Walter Bagley)