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DuPont highlights threat from crop price falls

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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 trend'

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.

'Committed to continued investment'

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 season.

"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.


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