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Farmers scrimping on seed, says Agrium, as it trims profits hopes

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Agrium flagged a move by North American farmers, pressed by lower crop prices, to buy cheaper, lower-quality seed as the farm retail-to-potash group unveiled earnings which fell short of market hopes and trimmed its profits forecast.

The Canadian-based group, which with 1,300 facilities runs one of the world's biggest farm retail network, said that its performance in the sector in the April-to-June quarter would pick-up after a slow start to the year, when a late North American spring delayed the start of regional sowings.

Seeding progress which "started to catch up in late April", and last week saw one of the strongest performances ever in US corn planting, implied strong sales of the inputs, from seeds to fertilizer, that it sells.

Furthermore, drier conditions in the northern US Plains and Western Canada, where wet weather prevented large expanses being planted last year, "are expected to support strong seeded acreage and related crop input demand in these regions this year compared to recent history".

Shift to lower-priced seed

However, there are signs that farmers may be cutting back on the quality of purchases, even while in many cases expanding acreage,

"Some growers have been more discerning regarding genetic traits [in seed], and in some cases have selected older, lower-priced varieties," Agrium said.

The comments are the latest in a series from a range of commentators on the potential for weak crop prices to cut farmer spending on seed, with Todd Becker, chief executive of ethanol group Green Plains saying last week that "from what we are hearing, he [the grower] is not buying the most expensive hybrid".

The head of a US brokerage told Agrimoney.com that "producers are cutting input costs by planting more of the cheap input stuff and less of the high cost stuff".

Societe Generale last week underlined expectations of weaker nutrient use too, flagging "prospects of lower overall fertiliser usage on lower crop prices".

The prospect of lesser, or lower quality, seed and input use poses a threat to ideas of bumper yields, which have been boosted in the US by farmers' strong progress last week on sowings of the likes of corn and spring wheat.

'Record Chinese exports'

Agrium's comments came as the group unveiled a jump to $14m in earnings for the January-to-March period, from $3m a year before, although the improvement reflected largely one-off factors. Including the disposal of some loss-making assets.

Underlying earnings per share, at $0.12, fell short of market expectations of a $0.33-per-share result.

Revenues fell 6.4% to $2.87bn, reflecting an 18.3% drop to $867m in takings from the fertilizer production operations, as the group rebuilt potash inventories, sapped last year thanks to a planned mining shutdown, and saw nitrogen prices undermined by bumper Chinese urea exports.

"Record Chinese global urea exports in the first quarter of 2015 contributed to weakened international prices," Agrium said, noting a longer-term impact too from these shipments, which have been encouraged by Beijing reforms of fertilizers export taxes.

The group said that a trimming to $7.00-8.25 per share, from $7.00-8.50 per share, in the guidance for full-year earnings was "primarily based on the impact of higher Chinese urea exports on global urea prices", besides "margin pressure on seed sales and the expected impact on crop input expenditures associated with a reduction in US corn acres this year".

Wall Street is expecting Agrium to report full-year earnings of $7.75 per share.

Agrium shares stood 2.1% higher at Can$127.65 in morning deals in Toronto.

By Agrimoney.com

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