WINNIPEG, Manitoba, Sept 23 (Reuters) - Canadian fertilizer companies Potash Corp of Saskatchewan and Agrium Inc are bracing for a pullback in demand from U.S. farmers due to sliding crop prices, but say any slump is unlikely to be severe.
The prospect for a record-large U.S. corn crop has dragged Chicago nearby corn futures to a four-year low. Lower prices of corn, wheat and soybeans reduce farmers’ margins, although big crops offset some of the impact.
Corn is one of the biggest users of fertilizer - which boosts crop yields - and the United States pays a premium for potash over some other markets that commit to supply contracts.
“There’s a reasonable case to say that there is some retrenchment” by U.S. farmers, said Potash Corp Chief Financial Officer Wayne Brownlee, speaking at a Scotiabank investor conference in Toronto on Tuesday. “We are going to be cautious about the U.S. next year, but we don’t see it to be calamitous.”
North American potash demand, mainly from the United States, amounted to 8.7 million tonnes last year, making it the world’s third-largest market after China and Latin America. Farmers apply most of their fertilizer after the harvest in autumn or in spring before planting.
Saskatoon, Saskatchewan-based Potash Corp assumes there will be some reduction in U.S. potash use after this year’s harvest, but Brownlee noted that the crop nutrient makes up only an estimated 3.5 percent of a farmer’s total costs.
Agrium, based in Calgary, Alberta, depends heavily on U.S. farmer spending because it also owns the country’s biggest network of farm retail stores, which sell fertilizer and other products directly to farmers.
Agrium Chief Executive Officer Chuck Magro said he expected record U.S. yields should support relatively strong fertilizer applications in the fourth quarter and first half of 2015, but “near-perfect weather” has already limited sales of chemicals that protect crops from disease and insects.
Magro said farmers have historically tended to cut back on buying farm equipment and renting land before trimming spending on fertilizer and chemicals.
Farmers may pull back on phosphate and potash applications, but history shows that total U.S. fertilizer consumption remains fairly consistent around 20 million tonnes annually, Magro said at the Toronto investor conference.
The duration of the autumn period for farmers to apply fertilizer before winter will be a key factor in sales, Magro said.
Other markets are likely to make up any shortfall from U.S. buyers, Brownlee said. Potash Corp expects possible record global potash shipments in 2015 of 58 to 60 million tonnes.
Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by Tom Brown