The 2010 Rabi season has begun on a negative note as the fertilizer off-take dipped by 11 percent year-on-year in October - chiefly led by a massive 46 percent decline in the sale of DAP fertilizer.
Many in the industry reckon that heavy pre-season buying of dealers in anticipation of higher urea prices in the last two months of the year is the sole reason for the 4 percent year-on-year decline in urea sales. But there is no reason to believe in this hypothesis, as nothing, at present, is indicative of a surge in urea prices in November and December.
If anything, urea prices have historically either remained flat or have declined during the said period. Also, imports are all set to land on ports very soon, which signals a satisfactory urea supply scenario in the near term, and not to forget the inventory that has doubled from the past year.
DAP sales shrank by 46 percent year-on-year partly because of the early procurement in pre-Rabi season and partly because of unfavorable cultivation scenario.
The fact that sugarcane growers have not entirely harvested their crops and are waiting for the mills to start crushing have left farmers with no choice but to keep waiting. This, in turn has left them without the need of fertilizer in an otherwise peak DAP application season, as the sowing of wheat crop in most parts of the country has been delayed. Hence, the fall in urea off-take.
The farmers did not have much appetite for DAP during October and by the look of things, the outlook for DAP sales during November does not look that promising either as wheat sowing is yet to start.
Even when the Rabi season kicks off formally, the fertilizer off-take won be as high as previous years because of the irrigation water shortage reported in a number of areas. The problem has risen because of the extended sugarcane season, which consumes water in large quantities - leaving less room for the wheat crop to prosper.
The not-so-healthy farmers economy would not allow them to purchase urea and DAP in high quantity when the New Year begins. Urea prices are all set to shoot up by February, following a sizeable expected increase in feedstock gas price.
What is more worrying is the anticipated hike in DAP price owing to a rise in the price of sulphuric acid that typically tracks the movements in global crude oil. Unlike urea, DAP inventory is on alarmingly low levels, which could act as a catalyst to the product price increase. These factors signal a much poor end to a season that has already started on a negative note.
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