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Fertiliser price pressure likely as commodities recover: Rabobank

Friday 8th January 2010

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Global agricultural lender Rabobank is warning that last year's sharp rundown in farm inputs manufacturing threatens price pressure and supply bottlenecks as agricultural commodity prices rebound this year and farmer resume on-farm investment.

"Farm input prices have stabilised at similar levels to 2006/7 and Rabobank expects that most farm inputs will remain above pre-2006 average levels in the short to medium term," says Rabobank analyst Adam Tomlinson in the report.  "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-2000's."

Any short term disruptions in farm input supplies would see price impacts caused mainly by energy costs, reflecting the energy-intensive nature of some input manufacturing processes and the use of hydrocarbons to produce products such as nitrogen fertilisers.

Meanwhile, agricultural commodity prices looked likely to remain above 10 year averages as they recovered from last year's slump, which dropped annual fertiliser consumption in New Zealand by approximately 25% below 2007/8 levels, said Tomlinson.

Higher farm input prices were likely to drive farmers to use inputs more efficiently and there was little prospect of the kinds of price spikes seen in 2008, when fertiliser manufacturers were using all available manufacturing capacity for a time.

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