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Flooding dampens hopes for Uruguay ag inputs market

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"Widespread flooding" in parts of Uruguay, from the same front inundating Argentina, have prompted PGG Wrightson to evacuate a seed factory, and have cast a shadow over upcoming farm input sales too.

PGG Wrightson, the farm retail group based in New Zealand, "experienced physical damage" to offices and the machine processing room as "floodwaters" swept through its seed cleaning site in the south east city of Rosario.

While the flooding is expected to have caused "minimal" physical damage to the plant, and cost a "manageable" amount of seed, the business could feel a longer-term dent to its performance from the dent to farm spending from the floods, PGG Wrightson's owner, Agria, said.

Agria is "closely monitoring the impact to soybean and sorghum grain yields throughout the country", the China-based company said.

"Reduced yield could negatively impact farm income, affecting sales of seed for autumn re-grassing and other farm input products."

Alan Lai, the Agria chairman, said: "We are cautious about the broader impact on the autumn selling season."

'Devastating production losses'

By some accounts, Uruguayan farms have suffered even more from heavy rains than neighbouring Argentina although, as a far smaller soybean producer, harvesting 3.1m tonnes last time, the damage has gone less reported.

"We seem to focus exclusively on Brazil and Argentina for good reason, but Uruguay has been flooded even worse than Argentina lately," said Joe Lardy at US broker CHS Hedging.

"They are facing the possibility of devastating production losses of 500,000 tonnes."

For Argentina, commentators are typically estimating soybean losses at some 2m-3m tonnes, from production which had been estimated at 59m-60m tonnes.

Earnings implications

Mr Lai added that the flooding in Uruguay - where PGG Wrightson bought a 50% stake in rural service business Agrocentro in August - may "pressure" Wrightson's results in South America "to the lower end of our expected range".

The South America division also sells seeds to farmers in Argentina, and in Brazil, where dryness rather than excessive rain is testing corn growers.

However, with performance "strong" in the key Australian and New Zealand markets, PGG Wrightson's overall expectations for operating earnings before interest tax and depreciation (ebitda) in the year to the end of June were "unchanged", Mr Lai said.

Wrightson, also known as PGW, in its half-year report forecast operating ebitda of NZ$61m-67m for the full year.

The report also said that "South American earnings are expected to improve in the second half as the seasonal focus of those markets switch from cropping to pasture.

"Sales within the South American seed business are heavily weighted towards the second-half of the year, corresponding with the key season for pasture seed and related inputs, so are not expected to be as adversely affected by low soybean prices."

By Agrimoney.com

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