The price of fertilizers looks set to outstrip that of crops themselves, as farmer demand recovers worldwide at a time when China is hoarding its own production.
UBS said that, among the major agricultural commodities, only soybeans remained on its "most favoured" list, forecasting prices of the oilseed would prove firm even into 2014 when they would average $12.00 a bushel in Chicago.
The oilseed's stocks, as compared with consumption, will "continually decline over the next four years, as China's consumption outstrips supply from the US, Brazil and Argentina", UBS said.
However, the bank said that its overall commodity preferences were "dominated by energy, fertilizers and precious metals" and named nutrient groups Potash Corporation and Taiwan Fertilizer among its top equity picks.
'Very tight'
Potash prices were set to rise by some 23% to an average of $430 a tonne this year, as measured at Vancouver, free on board, spurred by firm consumption by farmers cashing in on higher crop values, at a time of constrained production of the nutrient.
"North American demand has been very strong in the run-up to spring, while European recovery has been higher than expected," UBS said.
Phosphate prices will soar 27% to an average of $650 a tonne, fuelled by delays to Saudi Arabia's Ma'aden project, which will boost spot supplies by 10%.
Meanwhile, an extension by China to the period at which it imposes hefty taxes on exports of the nutrient will remove 15-20% of world phosphate supplies
"Global phosphate is looking very tight into 2011," the bank said.
"We expect Chinese export restrictions to remain in place for the foreseeable future and expect a tight spot trade market as US exports are expected to gradually diminish," with America's phosphate shipments seen falling by 1% a year to meet rising domestic demand.
Exporter turns importer?
In urea, for which China has also restricted exports for most of the year, the country was poised to become a net importer by 2012, because of the relatively high costs of its domestic production, which is made using coal rather than natural gas.
"High coal prices and export tariffs [will] keep China uncompetitive for exports."
Urea prices this year will rise 30% to an average of $375 a tonne, as measured at the Ukrainian port of Yuzhny, UBS forecast.
'Powerful indicators'
However, corn prices will average $5.50 a bushel in Chicago, well below current levels, as genetically modified seed enhances yields, while current high prices encourage sowings in preference to soybeans.
Raw sugar will average 19 cents a pound for the rest of the year in New York, depressed by a sell-down by speculators of lofty net long positions, and by a switch from India from being a net importer to a net exporter.
"Both are powerful indicators of price corrections."
