Since the end of June, prices for nitrogen fertilizer have soared 60 percent in the U.S. -- rebounding from the lowest levels in more than a decade. There have been similar moves in Brazil, India and the Middle East as some major consumers unexpectedly increased purchases. Shares of fertilizer companies such as CF Industries Holdings Inc. and Yara International ASA have surged.
But the rallies are defying a lingering global surplus of the world's most commonly used crop nutrient that some analysts say will probably send prices back where they were earlier this year. Production capacity in the U.S. is still expanding. And with grain prices weak because of a bumper harvest, farmers may reduce spending as their incomes decline.
"Oversupply is coming on like a tidal wave," said Ken Zuckerberg, senior inputs analyst for Rabobank in New York. "Farmers have been and continue to be under extreme financial pressure. The near-term optimism seems unsustainable."
The fertilizer markets have been in the grip of a classic commodities slump for several years, with unspectacular demand growth combining with excess supply. The situation in nitrogen is particularly acute. Unlike potash and phosphate fertilizers, which are mined, nitrogen fertilizer is synthesized from the air using natural gas. Farmers sometimes apply it to crops in a solid, granular form or inject it in liquid form directly into the soil.