Farmers are cautious over the ability of grain and oilseed prices to stay near record highs, and the impact of US drought on profits, prompting a continued reluctance to commit in advance to fertilizer purchases, PhosAgro said.

The phosphates and nitrogen group said that demand for nutrients had proved "strong" in the first half of the year, boosted towards the end of the period by the return of India, the top importer, to buy-ins.

However, this disguised a trend among primarily US and European growers to delaying purchased "until the actual application season started".

Sensitive period

In part this is due to concerns over the ability of prices to maintain their rally, which has driven Chicago corn and soybean futures to record highs.

Farmers were badly caught out in 2008 by a collapse in crop values as the global recession hit, hurt in part by inventories of fertilizers they had built-up at high prices, which tumbled too.

The concerns chime with worries among Chicago investors too that futures may repeat their declines of last year, when corn prices tumbled 28% from a late-August peak as funds sold-off.

Mike Mawdsley at broker Market 1 said: "Funds are long. If they choose to leave markets can go down.

"Last year we lost $2.27 a bushel in corn and $3.13 in soybeans between the end of August and the first part of October."

Profit fears

Furthermore, PhosAgro noted macroeconomics fears among growers, besides the debate as to whether high prices, and insurance payouts, can make up to US farms the profits lost to drought-hurt yields.

"Farmers appear to remain cautious in the current environment given continued expectations of a debt crisis in Europe as well as different perceptions of the consequences of the drought in the US," the group said.

While farm equipment groups, such as Deere & Co, have curbed expectations for near-term US sales for fears of drought hitting grower demand, amid evidence of a market slowdown, the US Department of Agriculture on Tuesday forecast a 3.7% rise to $122.2bn this year in total farm earnings.

"Large increases in the value of this year's crop and crop insurance indemnity payments have more than offset declining milk sales and rising production expenditures," the USDA said.

Difference from 2008

However, PhosAgro also noted that most farmers in most regions were "not currently experiencing any liquidity constraints, unlike the situation in 2008", when the credit crunch prompted many lenders to withdraw funding lifelines.

And if crop prices remain high "for some time farmers are more likely to start investing into maximising output, including through fertiliser purchases".

The Russian-based enterprise was particularly upbeat over prospects for compound fertilizers, such as the combined nitrogen, phosphate and potash nutrient NPK< in which the group said it was to raise further its capacity.

"PhosAgro sees very high global demand for complex fertilisers," the company said.

Profits fall

In the first half of the year, export sales of NPK more than doubled to 9.04bn roubles ($295m), although this came in part at the price of a 23% drop to 19.5bn roubles ($681m) in shipments of phosphate products, such as diammonium phosphate.

And, with the group needing to buy in extra potash to make NPK, phosphate division profits dropped 6.6% to 17.2bn roubles ($561m), despite a rise of 3.6% to 44.0bn roubles (1.44bn) in revenues.

Group earnings fell by 21% to 10.8bn roubles, hit also by extra financing costs and a loss on currency movements.

Nonetheless, this was some 300m roubles above market forecasts, although revenues of 50.4bn roubles, a gain of 3.3%, fell a little short of expectations.

PhosAgro depositary receipts, a proxy for shares, fell 1.5% to close at $12.86 in London.

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