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Cold weather in Europe and a warm winter in the US have pushed grain prices higher in past weeks as many fear losses of spring yields. Despite concerns, high commodity prices are a strong incentives for farmers to plant record acreage and increase potash purchases.
By James Wellstead — Exclusive to Potash Investing News
Unseasonable weather in Europe and North America has given farmers a lot to think about this winter as they prepare to make spring potash purchases. While crop loss due to winterkill in the Ukraine and low soil moisture levels in US grain acreage have pushed grain prices higher, expanded planting in some markets could push fertilizer purchases higher in 2012.
A wave of frigid temperatures has washed across continental Europe over the past two weeks, raising the specter of a season of crop loss due to winterkill as several countries have plunged below seasonal averages.
With arctic temperatures hovering over the Ukraine, France, Germany, Poland, and across the Balkan region, farmers and analysts are now concerned that the –20° Celsius and below weather, combined with low snowfall in a number of these same farming regions, could leave European wheat and rapeseed crops exposed to soil moisture loss and seed damage for the season’s first harvest.
According to UkrAgroConsult, a crop and food analysis group for the Black Sea region, more than 2 million hectares of the Ukraine’s winter grain crops have been lost to winterkill, the largest area lots in the past eight seasons. As a result, the Ukraine, a major grain grower in Eastern Europe, will need to replant at least half of its winter crops.
Further, cold in Germany and France, the two largest grain producing nations in the European Union, has tested the resilience of grain producing regions. So far the most important impacts have come from the freezing of inland rivers (particularly the Danube and Elbe rivers) used to transport grain within the continent.
European wheat prices reacted to the cold snap, pushing prices to their highest level in eight months, with Paris-based March milling wheat topping out at €223.50 per tonne, while the price of rapeseed (used to produce canola oil) also pushed higher up from 2.85 percent on the year to €433.50 per tonne in Paris on Monday.
US weather concerns
On the other side of the Atlantic, a lack of snow and cold across the upper US Corn Belt has left farmers worrying that corn, wheat, soybeans, and other crops will be afflicted by low soil moisture levels later this summer.
Illinois and Iowa, which have been experiencing temperatures almost 3.5° Celsius above seasonal averages, are relied on to produce about one third of all the corn and soybeans grown in the US, the world’s largest exporter of both crops.
The warm weather has also allowed winter wheat to grow early and quickly, which has left it susceptible to a round of freezing temperatures. Steve Harrison at Louisiana State University AgCenter has worries that cold weather could seriously impact wheat production in the Southeast of the US.
“A freeze could cause enormous losses,” says Harrison. “If there’s a freeze – say temperatures drop to 24 degrees (-4.5 ° Celsius) at the end of February – it might mean a 40 percent loss across our region alone.”
Winter weather and potash application
While seasonal weather constantly fluctuates around average conditions, this slate of recent winter weather events has added another layer for farmers assessing their upcoming spring fertilizer purchases. As grain prices push higher in many regions, there appears to be increasing support for the “strong farmer economics” arguments advanced by many in the potash industry.
Bill Doyle, President and CEO of PotashCorp (TSX:POT), noted in January’s quarterly conference call that in the corn industry, fertilizer pricing represents 14 percent of corn revenue today, compared to 22 percent in 2008 and 18 percent for the 10 year average.
A recent Bloomberg survey of 36 bankers, farmers, and analysts has added some context to to these claims, suggesting that record acreages of planting for corn, wheat, and soybeans are expected across the US, with an addition of 226.9 million acres in 2012, the biggest increase since 1984.
Responding to high commodity prices, farmers appear eager to take advantage of high corn and wheat prices while they remain. “We’re going to plant the most corn acres ever,” said North Dakota corn farmer David Kopseng. “I’ve been buying some more land and renting more because of corn’s profitability. It’s a great time to be a farmer in North Dakota.”
Corn crops in Illinois, Iowa, and North Dakota typically receive relatively high levels of potash application per acre. According the USDA, 81, 68, and 53 percent of corn crops respectively received potash application in 2010.
Purdue University agronomist Bob Nielsen has suggested that while weather extremes are important for understanding potential yield impacts on crops such as corn, there are “a lot of common-sense agronomic principles that work together to minimize the usual crop stresses that occur every year and allow the crop to better tolerate uncontrollable weather stresses.”
Recent comments from Mike Wilson, President and CEO of fertilizer producer Agrium (TSX:AGU), following the release of record level profits, shows that potash producers continue to be attuned to grain market dynamics. “As the spring planting season approaches, farmers have a strong incentive to plant record acreage and optimize the use of Agrium’s full array of crop input products and services to maximize crop production.”
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.