Petrobras has selected Yara's bid and the deal now needs to be approved by the company's board, one of the sources added. An announcement is expected over the next weeks.

Yara declined to comment on "market rumors." Petrobras declined to comment on the choosing of Yara proposal, referring to its latest filing sent late August in which it says the companies could present binding proposals.

Yara already owns five plants in Brazil and 24 mixing facilities. It also owns mining and port operations.

Petrobras' fertilizer unit, known as UFN-III, is based in Mato Grosso do Sul state, one of Brazil's largest grain producers.

The sources did not specify the deal value, but said it will be lower than $100 million, since the unit is not yet operational.

Petrobras has been trying to sell the unit for a while. In February it agreed to sell it to Russian group Acron, but the deal collapsed. In May, the oil company relaunched the process with advisory of the investment banking unit of Banco Bradesco SA.

Other companies interested in the deal included Brazilian group Unigel and steelmaker CSN. The final deal announcement has been delayed due to recent changes in Petrobras' board.

Brazil is highly dependent on fertilizer imports. Construction of the fertilizer unit in the city of Tres Lagoas began in 2011 and was stopped in 2014 with 81% completed after Petrobras rescinded a contract alleging companies were not compliant.

When operational, the unit is expected to produce 2,200 tonnes of ammonia and 3,600 tonnes of urea daily, around 20% of the urea consumption in the country. The unit is expected to be completed within two to three years.

Petrobras is expected to offer the acquirer an option of buying the unit with a natural gas supply contract. The state-controlled company had a larger fertilizer business, but began divesting in 2018. Interest for fertilizer businesses has risen after the Ukraine war interrupted supply and raised fertilizer prices.

(Reporting by Tatiana Bautzer and Rafaella Barros; Editing by Josie Kao)

By Tatiana Bautzer and Rafaella Barros