North American agrisupply and potash manufacturing group Nutrien has reported reduced profitability on higher sales from its latest “challenging” full year’s trading. But the business says the short-to-medium term outlook is favourable.
The Saskatchewan-based company was formed in January 2018 through the merger of farm inputs retailer Agrium and fertilizer maker PotashCorp. The latest period saw it complete the purchase of the Australian ag retail business Ruralco, now rebranded under Nutrien colours.
The company said the recent progress in US/China trade negotiations has underpinned positive sentiment among US growers, as agricultural exports to China are expected to improve significantly both in the short and medium terms.
At the same time, the USDA has estimated that 2019/2020 global grain stocks, excluding China, are at six-year lows. Assuming more normal weather conditions after last year’s cold, wet spring, Nutrien expects US crop input demand for the 2020 growing season to be lifted by a 6% (or 14 million acre) increase in the planted area compared to the prior year.
Nutrien predicts that demand for potash in Southeast Asia will increase after the significant improvement in palm oil prices since mid-2019.
But, despite improved agricultural fundamentals in most key markets, the company “continues to monitor the possible impacts of the Coronavirus, drought conditions in Australia and the African Swine Fever”.
Global potash demand to rebound
Nutrien estimates that global potash deliveries were approximately 64.5 million tonnes in 2019, a significant fall from the 66.7m tonnes in 2018. This was due to high 2019 opening stocks, the adverse growing season weather in North America and weak palm oil prices in south east Asia.
But the company expects global potash demand to rebound in 2020, driven by increased crop acreages in North America, higher demand from Indonesia and Malaysia, lower opening stocks and attractive pricing. Global potash deliveries in 2020 are forecast at 66 to 68 million tonnes, similar to 2018’s record deliveries.
Nitrogen earnings were 19% lower in the final quarter, through reduced ammonia sales and values. But full year EBITDA was 2% up on 2018 due to lower gas raw material costs. Nutrien expects 2020 nitrogen fundamentals to improve, supported by higher North American plantings, stable demand in other key regions and limited new global capacity.
The business made a net loss of $48 million on sales of $3.44 billion from continuing operations in the final quarter, largely due to lower potash sales volumes and lower selling prices due to “a temporary reduction in global demand, the impact of production downtime and the Canadian National Railway labor strike". But the retail division performed well, with an 8% increase in EBITDA.
Full year 2019 results saw net earnings of $992m on sales of $20.03bn, compared to $3.57bn and $19.64bn in fiscal 2018. Retail EBITA grew by 2% across the twelve months.
Agriculture fundamentals strengthening
“Nutrien’s earnings held up well in 2019 and we generated strong free cash flow in a very tough agriculture market,” commented Nutrien president and chief executive Chuck Magro. “We executed on our strategic plan, growing our Retail business with several strategic acquisitions and made great strides with the roll-out and adoption of our leading Retail digital platform and financial tools.
“Agriculture fundamentals are strengthening and grower sentiment is positive. We expect higher planting and favorable farm economics to support strong North American crop input demand in 2020.”
“Our business is designed to provide stability in times of market weakness, with significant leverage through a recovery in fertilizer markets. We remain focused on optimizing our network, allocating capital to grow our Retail business and leading our industry in returning capital to shareholders.”