DuPont restated its long-term faith in the agriculture
market despite acknowledging the threat to prospects from the tumble in crop
prices, particularly of corn, a key earner for its seeds business.
The chemicals-to-healthcare conglomerate, whose agriculture
assets include seeds company Pioneer, is "closely watching the development of
[US] corn and soybean crops, and the impact on commodity prices", said Jim
Borel, executive vice-president of DuPont's agriculture division.
"Another strong harvest in North America, if realised, will continue
to pressure overall economics for corn and soybean farmers.
"If the current supply dynamics persist and corn planted
area remains under pressure, it will temper short-term growth rates for the agriculture
segment, particularly in our seed business."
'We comprehended the
Elle Kullman, the DuPont chairman and chief executive, said
that the group had already taken action in response to soft corn seed sales behind
a drop of 11.2% to $836m in agriculture sector operating profits in the
April-to-June quarter, as announced separately on Tuesday and heralded in a
profits warning last month.
"If you take a look at the restructuring charge that we
announced in the second quarter, you will see an ag component on that, so obviously
we comprehended the trend and are taking steps," she told investors.
DuPont announced a $263m pre-tax group restructuring charge
for the quarter, of which $48m were attributed to the agriculture division.
Nonetheless, Mr Borel said that DuPont retained faith in the
agriculture sector, and the support to the sector's prospects for a growing
world population and increasing consumer prosperity.
"I'm confident the fundamentals for our long-term sustainable
demand growth remain intact, influenced by transient population, rising incomes
and desire for improved diets," he told the investor call.
"We remain committed to continued investment in agriculture."
Indeed, the group's pipeline of new agriculture products "is
as strong as I've seen it in my 36 years at DuPont", he said, highlighting the
Cyazypyr insecticide and the Dermacor seed treatment introduced in Brazil.
Corn vs soybeans
Indeed, he forecast that DuPont's crop protection business
would lead growth in DuPont's agriculture division over the second half of
2014, with lower corn seed sales for the forthcoming Brazilian main crop sowing
"We expect lower corn sales in Brazil's summer season as
growers continue to shift hectares from corn to soybeans," Mr Borel said,
adding that this reflected a broader trend.
"This shift began last summer in Latin America and continued
through Brazil's second season and this spring's planting season in the
northern hemisphere, as global corn supplies have been rebuilt more quickly
than in soybeans."
Furthermore, corn seed prices in Brazil are "expected to be
modestly lower, reflecting the impact of fall armyworm resistance to the [genetically
modified] Herculex 1 trait",
Fall armyworm, like fellow moth caterpillar helicoverpa, or
corn earworm, has become an increasingly important pest for South American crops.