Taking a rain check: Australian farmers shun fertilizer purchases as drought lingers

SYDNEY, (Reuters) – Australian farmers are postponing buying fertilizer and other products they typically use to protect their crops as a drought across the country’s east coast darkens the outlook for the rural sector in one of the world’s top exporters of grains.

Australia is the world’s sixth largest canola producer.

Farmers usually begin sowing wheat, the nation’s biggest rural export, in late April, but this year they are trying to minimise expenditure on items such as fertilizer, herbicides and pesticides amid the threat of a second-straight crop failure following the hottest summer in records going back to 1910.

That means companies that make those products like Nufarm , which reports half-year financial results on Wednesday, could become the latest to be caught in the fallout from the catastrophic drought that is already hitting everything from wine production to the wool clip.

“I would normally have bought about 100 tonnes of (fertilizer and crop protection) product by now, but there has been no rain, we have no soil moisture, so I haven’t purchased any this year,” said Tom Woolaston, a grains and livestock farmer in Somerton, around 440 km (275 miles) northwest of Sydney.

Analysts said it was too early to forecast 2019/20 demand for fertilizer and crop protection products as rain later in the season could bolster appetite again.

“If rains arrive in September, farmers will increase the use of nitrogen, if it remains dry, demand will fall further,” said Wesley Lefroy, an analyst at Rabobank.

Demand for fertilizer in Australia fell 2 percent to total 6.5 million tonnes last season, according to data from industry group Fertilizer Australia.

Researcher IBIS World estimates Australia’s fertilizer industry is worth about A$4 billion.

Nufarm in September reported an annual loss, sending shares down more than 8 percent. At that time, Nufarm said a return to profitability was likely in 2019, but that this would depend on a return to “more average (weather) conditions” by winter.

“Nufarm has guidance but in our opinion, there is a significant downside risk,” said Belinda Moore, equity analyst, Morgans.

A spokeswoman for Nufarm declined to comment as the company was unable to speak ahead of its financial results.

A poor season last year also meant that farmers stopped applying fertilizer earlier than usual, leaving them with stockpiles that still need to be worked through, growers said.

Nearly half of the states of New South Wales and Queensland have recorded less than 50 percent of their normal amount of rain over the last three months, data from the Australian Bureau of Meteorology shows, with dry conditions set to linger until at least the end of May.

New South Wales and Queensland usually produce about half of all Australian wheat. The country’s exports of the grain were worth an estimated A$5.5 billion ($3.9 billion) last year.

“There is no margin for error. There is virtually no soil moisture, so any prolonged period of dry weather is going to leave some farmers unable to produce a crop again,” said Phin Ziebell, agribusiness economist, National Australia Bank.

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