OUTLOOK, KEY RISKS AND UNCERTAINTIES
The outlook for global and North American agricultural markets continues to be supported by rising global GDP levels as well as the rapid growth in demand for grain and oilseeds used for biofuel production. Corn prices have declined over the past month due to the 19 percent increase in U.S. corn acreage (to 92.9 million acres) and generally positive growing conditions, as well as higher forecasted corn production internationally. In contrast, wheat and soybean prices have increased over the past month due to an anticipated tightening in the outlook for these crops. Crop prices remain well above historic levels and North American growers are expected to benefit from strong incomes this year, although a large U.S. corn crop could result in lower corn prices and some switching back to soybeans and wheat in 2008. Strong crop yields should result in higher nutrient uptake levels and lower nutrient carryover levels in the soil, which in turn should support nutrient demand heading into the next crop year. A new U.S. Farm Bill is expected to be introduced in late 2007 and will likely include reduced farm program payments, however this is not expected to have a significant impact on crop input demand given the anticipated strength in farm incomes from the market place. Strong global oil prices combined with the potential for some moderation in crop prices is expected to continue to support the medium-term growth in demand for corn and sugar for ethanol production, in particular, and biofuels, in general.
We believe the nitrogen market remains generally balanced, however international urea prices have been under pressure due to increased Chinese exports, and Chinese exports will likely remain a key risk for 2007. North American urea producer inventories are roughly equal to last year.
The potash market is currently tight and industry analysts expect it to remain balanced to tight for the medium-term. North American producer inventory levels as of the end of June are more than 25 percent lower than the five-year average. The completion of mine expansions, particularly in North America, is expected to increase the supply of potash to the domestic and offshore markets over the next few years. Chinese negotiations for 2008 are a key uncertainty for potash markets.
The phosphate market continues to be firm due to strong global demand and U.S. production curtailments that have occurred over the past two years. U.S. phosphate producer inventories were down 30 percent at the end of June, 2007 versus the prior year. International demand remains firm partly due to strong purchasing from India, South America and Pakistan. The key risk for phosphates would include potential Chinese exports and, as for other nutrients, any unexpected reduction in the rate of future demand growth.
From CNN Money