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CF sanguine on US corn sowings, despite some area losses

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CF Industries, highlighting a "very positive demand trend" for corn, flagged the potential for US sowings of the grain to beat the official forecast, despite some switching in wet areas to later-seeded crops.

Tony Will, the CF Industries chief executive, acknowledged that some US growers may have been prompted by plantings delays prompted by persistent rains to switch some land from corn to other crops which can be later seeded.

"You're seeing possibly some switching in the South East - it's been very wet in that area," Mr Will told investors, citing rice as likely to gain area in the region at corn's expense.

Nonetheless, the nitrogen fertilizer producer overnight forecast US corn sowings "in excess of" 89m acres, a figure in line with the 89.2m acres forecast by the US Department of Agriculture.

'Very positive demand trend'

And Bert Frost, CF senior vice-president, sales, flags the potential for higher plantings, given the signals from robust demand for corn.

"You see some good demand for ethanol - we think that that will continue to move forward," Mr Frost said, foreseeing the potential for the US to export "maybe" 1bn gallons of the biofuel this year, a forecast in line with that from Archer Daniels Midland chief executive Juan Luciano earlier this week.

"When you look at the price for protein and the values for DDGs [distillers' grains] and the values for ethanol and the ability to export that incremental gallon, it sets up a very positive demand trend for corn and we think higher planting levels," he said.

"So I wouldn't be surprised… to see actual corn acres be on the positive side" of the range of the company's 89m-90m-acre planting forecast.

The forecast contrasts with an expectation from the United Nations Food and Agriculture Organization of a "5%, price-induced reduction" in US corn plantings – a figure suggesting sowings nearer 86m acres, although the agency was upbeat on yield prospects.

Mr Frost said that CF Industries was, assuming a trend yield for corn of about 165 bushels per acre, foreseeing inventories end 2015-16 at about 13-14%, as a proportion of consumption, around the same as the current season's figure.

'Purchasing activity slowed'

The comments followed the release by CF Industries of results showing a 67% slump to $230.6m in earnings for the January-to-March quarter, on revenues down 5.8% at $953.6m.

However, at $4.79 a share, earnings were above industry expectations of $4.61 a share.

The decline in profits was attributed to a slow start to the US planting season, thanks to a relatively late spring, at a time when dealers already had built-up some inventories.

"Prolonged cold and wet weather prevented application, so purchasing activity slowed as buyers waited for farm-level demand to emerge," the group said.

'Robust set of orders'

However, it forecast a better performance in the current, April-to-June quarter, given the pick-up in the planting pace, which saw farmers last week achieve one of their strongest performances ever in corn sowings progress.

"The company has a robust set of orders for ammonia delivery during the second quarter and expects strong ammonia demand," CF said.

"Favourable pricing conditions are being supported by limited producer inventories and strong ammonia demand as warm weather progresses north through the Corn Belt."

The group acknowledged the dent to world prices of urea from strong exports from China, which soared to 4.4m tonnes in the January-to-March period, from 2.0m tonnes a year before, encouraged by export tax reforms and low shipping rates.

However, CF said that, having sold some urea forward in stronger market conditions, it should achieve "favourable average price realisations compared to industry quoted US Gulf prices".


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