September 24, 2009 / 6:13 PM / 10 years ago

POTASH-Brazil sugar crop seen boosting fertilizer imports

(This story is part of a special package highlighting the global potash industry.)

* High sugar price seen driving Brazilian potash demand

* Sugar cane acreage expected to double in next 10 yrs

By Inae Riveras

SAO PAULO, Sept 24 (Reuters) - The expansion of sugar cane farming in Brazil will likely increase reliance on foreign supplies of potash in the Latin American country, already the world’s No. 3 importer of fertilizer.

Sugar futures recently jumped to their highest level in nearly 30 years due to a steep decline in Indian output. The high prices should encourage more cane planting and lead to heavier use of potash as early as next year.

Potash is an indispensable ingredient to increase sucrose concentration in cane — or the actual amount of sugar that can be extracted from cane.

“Cane is a potash sponge so I believe we’ll see demand growing in cane fields already in 2010,” said Alexandre Mendonca de Barros at MBAgro consultants, adding that he expects cane planting to expand again from 2011.

Brazil is the world’s fourth biggest consumer of fertilizer and is highly dependent on imports. Even as the government pushes for increased domestic production, imports will likely to keep growing as the country’s agriculture expands.

“Brazil demands more potash than the world on average due to its needs in coffee and orange production and especially sugar,” said Eduardo Daher, executive secretary at the National Association for Distribution of Inputs, Anda.

Currently, Brazil imports 90 percent of its potash requirements, 75 percent of its nitrogen and half of its phosphorus.

The government is pushing for companies, including iron mining giant Vale VALE5.SA(VALE.N), to invest more in prospecting the vast Brazilian territory. Still, analysts believe any increase in domestic output is still a long way off.

“Brazil’s dependence on potash will grow even more. Local supplies are laughable compared to Brazilian demand and I don’t see it changing in the short or medium term,” said MBAgro’s Barros.

Brazil is already the world’s largest producer of sugar cane and official estimates indicate the amount of land growing cane will double in the next 10 years to around 13 million hectares (32 million acres).

The increase could come sooner if sugar prices stay around current levels in the months or even years ahead, analysts say.

Brazil’s ethanol industry borrowed heavily in the last few years to finance expansion but the credit crunch resulting from the global financial crisis dealt a heavy blow and froze investments.

With the recovery in sugar prices, analysts expect the sector to resume investments in cane fields and expand the total planted area.

One hectare of cane plantation usually requires between 450 kilos and 500 kilos of fertilizer, and almost half of the product is composed of potash.

“Cane accounts for 13 percent of Brazil’s fertilizer consumption currently but this is gradually growing,” said Anda’s executive secretary, Eduardo Daher.

He expects fertilizer demand for cane to surpass that for corn, which is currently the second-largest consuming crop, accounting for nearly 20 percent of Brazil’s demand. Soy is the hungriest crop, consuming 33 percent.

With farmers eager to cash in on high sugar prices, Barros said they were using extra potash to replenish soils in fields that had been in production for extended periods.

Based on that, the analyst expects potash demand for cane to jump in the next few years, after two years of stagnation as sugar and ethanol prices remained low.

High potash prices however, could cause some growers to switch to vinasse, a potash-rich cane byproduct.

Potash prices during the first half of the year were close to last year’s peak of $700 per tonne but Barros said the subsequent fall on international markets to around $460 per tonne had not yet fully been passed on in Brazil.

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