CHICAGO, Feb 18 (Reuters) - A sharp drop in crop prices has the world's biggest grain traders further distancing themselves from the global fertilizer business to reduce risk.
Cargill Inc on Wednesday said it will stop selling fertilizer, along with crop chemicals and seeds, to farmers in Central and Eastern Europe by the end of May, its latest cutback after beginning a restructuring last year.
Rival Louis Dreyfus Commodities, which is one of the largest fertilizer distributors in West Africa and works extensively in South America, has already sought buyers for its crop nutrients unit.
The retreat comes as traders have been squeezed by falling crop prices linked to large global harvests and faltering growth in major commodity markets including Brazil and China. The fertilizer sector is offering thin margins as nutrient prices also have dropped, and holding inventories is risky.
"I think most of the commodity merchandising companies will get out of this, just because of the price exposure," John Rogers, a senior vice president for Moody's Investors Service in New York, said about the fertilizer business.
An index of U.S. fertilizer prices tracked by industry publication Green Markets has dropped by about 45 percent from three years ago, while prices for corn futures are down by half over that time.
Volatility in the fertilizer market has made it harder for companies whose main business is buying and selling grain to manage inventories and risk, analysts said.
"It's a tough business," said Glen Buckley, partner for U.S.-based NPK Fertilizer Advisory Service.
"Why would they want to be in it?" he said about grain companies. "It's not their area of expertise."
Global traders have already pared their holdings.
In 2011, Cargill spun off its $24 billion majority stake in Mosaic Co, the world's largest producer of finished phosphate products.
In 2013, Bunge Ltd sold its stake in a Moroccan fertilizer company to OCP Group, which already owned half the company. Bunge also sold Brazilian fertilization operations to Yara International for $750 million.
With the sale to Yara, Bunge aimed "to create a more streamlined complement to our agribusiness operations with lower price risk and operating costs," a spokeswoman said.
In 2014, Mosaic bought Archer Daniels Midland Co's South American fertilizer business.
"Grain traders are focusing on core businesses, rather than ancillary businesses," said Kenneth Zuckerberg, an executive director for Rabobank International's Food & Agribusiness Research & Advisory.
Low crop prices also have recently prompted agricultural companies, including Cargill, to exit the U.S. crop insurance market. (Reporting by Tom Polansek; Editing by Chizu Nomiyama)