the significance of elevated corn sowings to fertilizer demand, and forecast
prices of the grain staying high for now, as the nutrient group unveiled record
However, while the
results beat market expectations, they were overshadowed by a sector downgrade by
an influential analyst.
farm retail and fertilizer group flagged the incentive to growers from
"historically high crop prices and production margins" to lift
plantings of major grains and oilseeds, providing a "historically-strong
incentive to maximise crop production".
In corn, the
prospect of another strong year of US sowings implied growers' increasing
successive corn sowings on the same fields.
which ignores best practice in crop rotation, requires extra spending on inputs
to avoid the risks of pest build-up, and nutrient drain, involved.
A knock-on effect
of the "market incentives to maximise crop production, particularly
corn," has been "increased corn-on-corn plantings, which invokes
increased crop nutrient and crop protection production applications",
'Strong seed demand'
The US Department
of Agriculture has forecast corn sowings falling 500,000 acres this year, to
96.5m acres a still historically-strong figure, with the International Grains
Council forecasting area at a 77-year high of 98.8m acres.
Agrium said that
demand for seed "has been strong leading into the 2013 spring season, as
growers have sought to assure supply of the top genetics", and exploit
prices supported by the need further to ration supplies.
To meet USDA
forecasts for domestic corn stocks at the close of 2012-13 means rationing
1.2bn bushels of demand between December 1 and the end of August, Agrium said.
situatiuon is expeced to support cash corn prices through at least the first
half of 2013."
There have been
concerns voiced that the slump in US corn production last year, thanks to
drought, has limited the supply of grain available as seed.
October-to-December quarter, Agrium's seed sales soared 27% to $105m, although
this was attributed largely to an increase in winter wheat plantings, rather
than advance spring seed orders.
helped the group's retail division raise sales by 7.9% to a company record of
$1.97bn during the quarter, and gross profits by 12.6% to $509m.
sales rose 10% to $1.1bn, although greater growth was seen in agrichemicals,
of which sales soared 22% to $491m, thanks to a dry autumn application period,
as well as price increases.
Sales in the
wholesale fertilizer business fell 5.2% to $1.16bn, and gross profit by 11.9%
to $490m, declines "primarily due to weaker global demand for potash and
weaker phosphate pricing".
While the outlook
for phosphate remained clouded by the prospect of a lack of sales to India,
where "domestic inventories are reportedly high", the outlook for
potash is "positive for the first half of 2013", after China and
India signed new import deals.
In nitrogen, while
US demand "is expected to be very strong as a result of high crop
acreage", a "strong pace of imports in the 2012-13 fertilizer year
has positioned the market well to deal with this demand," Agrium said,
forecasting a rise of at best in North American nitrogen demand in 2013.
Ahead of forecasts
The group reported
earnings of $354m for the quarter, a jump of 83% year on year, although this
result did include some one-off boosts, including $18m in insurance
Per share earnings,
excluding one-time items, came in at $2.16, above analyst expectations of a
shares tumbled 5.5% in late morning deals in Toronto to stand at Can$102.83,
after Dahlman Rose analyst Charles Neivert downgraded shares in major
fertilizer majors, citing the impact of expansion plans on boost supplies, and
so lowering price potential.
in urea is set to rise 18% by 2016, in phosphates by 12% and in potash by 31%,
Besides cutting his
rating on shares in Agrium, and CF Industries Holdings and Rentech Nitrogen Partners,
from "buy" to "sell", Mr Neivert downgraded Mosaic stock to "hold" from "buy",
and PotashCorp shares from "hold" to "sell".
Shares in other
downgraded companies showed lower price falls with Mosaic dropping 1.4% to
$56.90 and CF Industries 1.6% to $200.70 in New York, and PotashCorp 1.0% to Can$39.95