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Australia grain growing conditions 'quite challenging'

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Incitec Pivot highlighted a dent to demand for fertilizers from Australian dryness even as the nutrients-to-explosives group unveiled a 27% jump in earnings, helped by cost cuts and currency factors.

The Australian-based group unveiled earnings of Aus$146.5m for the October-to-March half, on revenues up 5.7% at Aus$1.59bn, led by a jump in takings from fertilizer production operations, which enjoyed both higher output and increasing prices of some products.

The boost from a rise of 9% to $474 a tonne in international prices of diammonium phosphate, a benchmark phosphate fertilizer type, as measured at the US port of Tampa was accelerated by a decline in the Australian dollar too against the greenback.

However, the fertilizer distribution business bucked the group's improved trend, reporting a 41% slump to Aus$19.0m in operating profits, on revenues up 2.5% at Aus$427.6m.

'Drought hurt earnings'

The deterioration reflected in part one-off factors, including a Aus$7m boost to year ago results from an asset sale.

But Incitec also highlighted a setback to demand from Australian dryness, evident in an easing of 1.2% to 816,000 tonnes in sales by volume.

"Drought in northern New South Wales and Queensland, negatively impacted earnings in the distribution business," the group said.

In more northerly Australian, summer cropping areas, "drought conditions…. negatively impacted cotton and sorghum planting, which negatively impacts on product mix".

As for demand for the main winter grains crop, being sown now, although demand "appears typical" for now, "rain is required in the next month in the dry South Australia, Victoria and southern New South Wales broadacre farming areas" if Incitec sales for the April-to-September half are to match those of a year ago, the group said.

'Challenging growing conditions'

James Fazzino, the Incitec Pivot chief executive, added that in the first half of the group's financial year "weather conditions were unfavourable with drought in the key cotton markets in northern Australia.

"We've actually had quite poor rainfall across most of the broadacre farming regions in southern Australia, and that will impact on" takings from winter crop farmers in the April-to-September half.

"Australian growing conditions at the moment look quite challenging for the winter crop, and that will impact on both volumes and margins in the distribution business," he told investors.

'Severe and serious rainfall deficiencies'

In fact, the comments follow a decent April for Australia, in rainfall terms, with the Australian Bureau of Meteorology saying that while precipitation was "above-average for much of the mainland south east", although it was "below average for large areas of Queensland".

Nonetheless, longer term, "severe and serious deficiencies are in place in a broad area extending from south of the Cape York peninsula, through central and western Queensland, into the areas of central southern Queensland and northern New South Wales inland of the Great Dividing Range," the bureau said, referring to the period since October 2012.

"Deficiencies are also in place in an area stretching from south eastern South Australia and western Victoria, away from the coast, to just over the border into southern New South Wales, with a small pocket also around the north east of Melbourne."

This bureau rates at three times the typical rate the chances this year of an El Nino weather pattern setting in this year.

"El Niño is often associated with below-average winter and spring rainfall over eastern Australia, and above-average daytime temperatures over the southern half of the country," it added.


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