Dark clouds emerge … again << UBS

Dark clouds emerge … again Agricultural economics look tougher next year Acreage and yields for key row crops are creating upside to supply during this current 2013/14 agricultural season. The US Department of Agriculture recently raised supply estimates for Corn, Soybeans, Wheat, Cotton and Rice in its June acreage, stocks and global supply demand reports. Weaker farm economics are likely to impact how farmers buy and what they will pay for agricultural chemicals and fertilisers Potash and Specialty Nitrates most at risk to price falls – no Indian Silver Bullet China has recently reduced the share of potash trade for cross border shipments directly from Russia. Russia is likely to favour volume over price with the next round of contract price negotiations. With weaker farm economics this may dampen the small price momentum recently seen in the Americas. Calcium Ammonium Nitrate's (CAN's) margin over urea peaked at 60% during Q2/14. With CAN margins over urea strongly influenced by wheat grower economics this margin is likely narrow to its historical average of 35% in 2014/15 - 10% below Yara's €228/tonne start of season price. India's change of government is driving speculation that potash and phosphate import shortfalls will be imminently reversed – our analysis in this report shows that remediation of the situation will likely take some time Phosphate sees strongest support from its supply structure, urea stable The recent recovery in phosphate markets has illustrated how North African producers have been able to manage oversupply in this market. We see DAP prices being maintained at the $485-$500 levels in 2015 and at $500 on average going forwards. Urea prices remain strongly influenced by cash costs of marginal exporters in China. We see increased stability in this market as Chinese anthracite prices (key raw material for Urea in China) have stabilised and the export tax regime is more stable. We see an average spot fob price of US$300/tonne going forwards Favour phosphate producers and downgrade Yara to Sell Favour phosphate producers Mosaic, Incitec Pivot, and Potash Corp. Least preferred on fertiliser pricing risks are Yara, Uralkali, China Blue Chemical and K+S .