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Incitec–Australia dryness curbing fertilizer use

Shares in Incitec Pivot tumbled after the group, Australia's largest fertilizer maker, cautioned over a dent to sales from poor weather, notably the dryness raising concerns over eastern grains crops.

The group, also a major explosives producer, said that winter demand for fertilizers in its eastern Australian heartland, where it has a market share of more than 50%, had been hit by "tough" weather conditions in the region.

Some of areas of Queensland, the top sugar producing state, had seen excessive rain last month delaying the seasonal onset of demand from cane growers.

However, the main dent was seen in southern Queensland and northern New South Wales, where "drought impacted cotton and grain" crops, with low agricultural commodity prices "also dampening demand for fertilizers" in the area .

Dry weather massively reduces the benefit of applying fertilizer, which requires moisture to take it down to plant roots.

'Less than ideal'

The comments come at a time of growing interest in the Australian grains crop, which has been seen as potential source of significant quantities of quality wheat supplies, after a disappointing European harvest, from a quality perspective, and concerns over the US too.

In fact, "Australia growing conditions in wheat have been less than ideal", said Gail Martell at Martell Crop Projections.

"Exceptionally warm August temperatures have been stressful in Western Australia, the top wheat state, while drought has emerged in New South Wales, Victoria and South Australia."

New South Wales and Victoria saw "only 30-60% of normal rainfall" over July and August, Ms Martell said.

In Western Australia, "August temperatures were abnormally warm", coming in 3-6 degrees Celsius above normal, and meaning that heading in wheat "is set to begin very soon in the northern wheat belt, three weeks ahead of schedule due to the unseasonable heat".

MDA forecasts that Western Australia will receive moisture this week, but "dryness will remain extensive across South Australia, Victoria and southern New South Wales".

Shares fall

Incitec Pivot said that demand for fertilizer for winter dressing of cotton and grains crops were "both down", reducing distribution volumes to some 1.8m tonnes.

The impact of curtailed demand in supporting inventories has also cut the boost to Australian fertilizer prices from an uptick in world values.

"Global fertiliser prices have lifted recently. However, the domestic market is long which has restricted price movements," the group said.

With Incitec Pivot noting "tough" conditions in all its mining markets too, major explosives buyers, its shares fell 5.4% to Aus$2.98 in Sydney on Wednesday.