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Initial spring crop numbers are giving markets — and phosphate producers — an early indication of just how big the expected American corn and soybean crops will be this year.
Markets were given an indication of future phosphate fertilizer demand after the US Department of Agriculture (USDA) released its crop planting survey for key grain crops last week.
The agency reported that US farmers will plant 97.282 million acres of corn in 2013, the most since 1936 and the fourth-largest amount of soybean acres ever, on the back of low grain stocks and strong market prices.
The USDA release also surprised markets by revealing that as of March 1, inventories of corn — the most phosphate-intensive grain — contained 5.399 billion bushels, 400 million bushels more than analysts initially projected. That brought corn futures prices down 7.6 percent on Monday, the biggest drop in 24 years, Bloomberg reported this week.
The reason that corn stockpiles were predicted to be much lower is that drought and heat destroyed 13 percent of US corn output last summer; however, that ended up providing farmers with the incentive to plant large crops this season.
Corn inventory levels are not expected to impact current phosphate applications as most of the application decisions for the current season were made by farmers earlier in the year.
Mosaic hits a bump, but still optimistic
Metals consultant CRU Strategies forecasts that diammonium phosphate (DAP) prices will fall this year, CEO Phil Newman told the PDAC conference in Toronto last month.
Sales from Mosaic (NYSE:MOS) have already given an indication of this dip in DAP prices. The company notes in its most recent quarterly report that its DAP sold for an average price of $496 per metric ton (MT) in its fiscal third quarter this year, down from $536 a year earlier. Mosaic had forecast that its DAP price would fall to between $485 and $515 per MT during this time.
This slide in prices has impacted Mosaic’s bottom line. Its report records gains in the company’s overall profits, but reveals that it is losing ground in the phosphates segment. Net sales for this area dropped 9 percent, to $1.5 billion, primarily driven by lower prices of finished products.
But the outlook for Mosaic is optimistic in terms of the long-term demand for phosphate fertilizers. Phosphate rock production in Florida grew to 3.6 million MT this quarter compared to 2.9 million MT in the same period last year, reflecting increased production at the South Fort Meade mine.
“Based on current agricultural commodity prices, fertilizer prices are about as affordable to farmers as they’ve ever been,” Mosaic’s CEO, Jim Prokopanko, told Bloomberg this week.
Ma’aden, Mosaic form joint venture in Saudi Arabia
Despite the losses its phosphate business has recently incurred, Mosaic plans to invest up to US$1 billion in the Wa’ad Al Shammal phosphate project in Northern Saudia Arabia. That will give the company a 25-percent stake in a joint venture with the Saudi mining and metal firm Saudi Arabian Mining (Ma’aden).
Minnesota-based Mosaic will provide direction in the mining, construction and operation of the $7-billion, 3.5-million-MT-per-year project. In return, the company will receive 25 percent of the project’s production; that amounts to 750,000 MT of phosphate annually, according to Reuters.
The deal will also give Mosaic increased access to growing Asian markets, including India, a nation that is eager to meet its growing demand for various phosphate fertilizer products.
“We are going to have a world-scale plant with secure supplies of raw materials as close as you can be to the growing Asian markets,” Prokopanko told Bloomberg in the wake of the announcement.
Company news
Celamin Holdings (ASX:CNL), an Australian company that is developing the Chaketma phosphate project in Tunisia, delivered a set of drilling and trenching results this week that exceed the expectations outlined in a scoping study.
Highlights from the 21-hole drill program, which was undertaken across four prospects, include intersections of between 26.4 and 41.65 meters, with grades of between 20.84-percent and 22.01-percent P2O5. Trenching results show intersections of 14 to 28 meters with grades of 19.84-percent to 23.56-percent P2O5.
The original JORC resource outlines only one prospect.
“These results increase confidence in the grade and thickness of mineralisation over the existing Kef El Louz resource area and confirm existence of mineralisation to the south, which could lead to future expansion of the Kef El Louz Mineral Resource,” Celamin said in a statement.
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.