Fertiliser prices could rise sharply in the coming year,
driven up by a combination of increased global demand and
depleted stocks.
An analyst with specialist rural bank Rabobank, Adam
Tomlinson, said prices should not reach the heights of
mid-2008.
But many fertiliser manufacturers and distributors had run
down inventories and any sudden increase in demand could push
up prices in the short term.
Mr Tomlinson said the recovery in dairy prices could provide
that impetus.
In 2009-10, fertiliser use in New Zealand fell 25% compared
to the previous year due to falling dairy prices and the
financial crisis.
This meant manufacturers and distributors were caught with
excess stock and production capacity which exceeded demand.
"In response to this, manufacturers of farm inputs have wound
back production and run down inventories, which could
potentially have a marked impact on prices if we see a large
rise in seasonal farm input demand."
The price of some fertiliser more than doubled in 2008 on the
back of soaring demand from growing economies and countries
controlling exports of raw materials for their own use.
The global financial crisis last year saw demand slump as
fertiliser use dropped following declining product prices.
Mr Tomlinson said agricultural commodity prices looked like
staying above the 10-year average, creating a risk of a spike
in demand for farm inputs and a subsequent rise in price on
the back of logistical constraints.
Farm input costs were at a similar level to 2006-07, but Mr
Tomlinson expected that to rise in the short-to-medium term
as food production increased in hand with the improved global
economy.
"An expectation of higher dairy prices in 2010 will push farm
input demand above 2009 levels, albeit still well below the
historic high levels of the mid-2000s," he said.
Farm input costs would come under pressure from higher energy
and other raw material prices, and environmental management
factors.
