Despite the prospect of lower commodity prices this season, New Zealand's dairy farmers are expected to maintain, if not increase, urea application this spring, according to new report by Rabobank.
In its semi-annual Global Fertiliser Outlook, Rabobank said while lower commodity prices were unlikely to cause major cash-flow issues or cost-cutting for farming businesses, they were expected to incentivise farmers to maximise the pasture curve and focus on home-grown feed.
"While moisture in the soil profile has increased in recent weeks, following a dry autumn, pasture growth remains below average in the North and South Island, including Canterbury. And assuming normal rainfall, farmers may increase urea application to bolster pasture growth," report co-author Rabobank agricultural analyst Wes Lefroy said in a statement.
The report said overall global fertiliser prices were either at, or near, 10-year-lows, but any ongoing benefit to New Zealand farmers may be somewhat offset by depreciation of the New Zealand dollar.
"The plummeting cost of raw materials, growing production capacity and mediocre demand have kept the global prices of nitrogen (urea), as well as phosphate and potash down" Lefroy said.
"A key contributor to this is lower energy costs, with the fall in fuel demand during Covid-19 lockdowns leading to natural gas prices falling by 46 per cent (UK NG ICE) and coal by 11 per cent (ZCE Thermal Coal)," Lefroy said.
"Global prices are a key driver of local prices and consequently local prices are now at affordable levels. We expect global fertiliser prices will remain near 10-year lows in US dollar terms over coming months, however, we're also forecasting the New Zealand dollar to fall from USc 65 to USc 62 by the spring, and this may lead to an upwards trend in local prices."
Strong rise in New Zealand urea imports
Rabobank's report said global fertiliser supply chains continued to produce and move product despite an elevated risk of Covid-19 related interruption.
New Zealand imports of urea rose strongly during the second quarter after a quieter start to the year despite the extra pressure Covid-19 had placed on global supply chains, said Lefroy.
"Following lower urea imports in the first two months of the year, New Zealand importers landed 68,675 metric tonnes of urea in March, according to data from the Commodities Research Unit (CRU). This is almost double March 2019 imports and the highest March imports in the last four years," he said.
Listen to Jamie Mackay interview Wes Lefroy on The Country below:
"Between 75 per cent and 85 per cent of New Zealand's urea imports are sourced from Saudi Arabia, Malaysia and China. And, while New Zealand does rely heavily on these countries for urea, fortunately there are sufficient alternatives if there was a supply interruption in one of these sources."
Fresh water reform caps nitrogen use from mid-2021
Rabobank's report said under the government's recently-released freshwater reforms, synthetic nitrogen use would be capped from mid-next year.
"Nitrogen use will be capped at 190kg (nutrient weight) of nitrogen per hectare per year for dairy farmers and applies to all manufactured synthetic fertiliser brought into the farm," Lefroy said.
"From July 2021, all dairy farmers will need to record the tonnage of nitrogen applied and area applied to, with this information then submitted to the local regional council on a yearly basis".