JS Securities Limited - JS Research.

Karachi -- September 07, 2022 (PPI-OT)

Fertilizers: Assessing challenges posed by floods

After mass damage to standing Kharif season crops, ongoing flash floods have also raised concerns regarding sowing cycle of Rabi season, beginning from mid-Sep/Oct, where wheat is the main crop. We look at implications for fertilizer offtake in case of disruption to wheat sowing cycle in the most affected areas, i.e. Sind and lower Punjab (DG Khan and Rajanpur).

We estimate 2.4mn acres to be impacted in Sind (80% of last season's wheat sowing target) and 1.3mn acres reported to have been impacted in lower Punjab. Of the total estimated cultivated land of 22.5mn acres, these 3.7mn acres could result in at least 17% of the area being unavailable for cultivation.

With ~ 2 bags of urea and 1 bag of DAP required for each acre of sowing, we highlight fertilizer offtake faces downside risk of 370k tons urea (~6% of annual and ~21% of 4Q offtake) and 185k tons DAP from wheat sowing in these areas. While impact of Maize will be over and above these.

Recent flash floods have materially impacted the agri sector

Where farmers were already burdened with inflationary pressures from 83% higher fertilizer and 2.1x higher fuel prices in the last 12 months, catastrophic floods piled on to their misery, destroying crops, cattle, infrastructure and land. After mass damage to Kharif season's crops, the ongoing flash floods have begun to cause concerns regarding sowing cycle of Rabi season, which begins from mid-Sep/Oct.

Most of Sindh and Southern Punjab is submerged under water just days before the start of the wheat planting season. Rehabilitation efforts are underway but the water will likely take some time to drain. According to agri experts, boundaries between farms have also vanished and will need to be redrawn. It is expected that some land will likely have lost its topsoil as well, making planting impossible in the coming cycle.

Primary agricultural infrastructure of farmers like tube-wells, storages, seed stocks/fertilizer inventory, various agriculture machinery and equipment - all have faced damages. These losses would result in reduced farmer income and it will take months to restore the infrastructure.

Wheat, lentil, tobacco, rapeseed, barley, and mustard make up the majority of the upcoming Rabi cycle's crops where Wheat is the most crucial being the...