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Weak fertilizer outlook prompts producers to cut profit hopes

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North American fertilizer producer Agrium, has lowered its full year guidance, citing a "challenging price environment" for the crop nutrient sector.

The move follows a similar downgrade by Potash Corp, North America's

Both companies are involved in make-or-break discussion with Chinese potash buyers to price their supplies for 2016, in an unusually protracted round of negotiations which will set the tone for potash markets this year.

Challenging environment

Agrium trimmed its ideas of full year earnings per share to C$5.25-6.25, compared to early estimates of C$5.50-7.00 a share.

"We have lowered the guidance range due to a challenging pricing environment for all nutrients and expectations for a stronger Canadian dollar," Agrium said.

"A number of factors combined to pressure the North American potash market," Agrium said, citing a glut of supply after low applications at the end of last year, and high imports from overseas in 2015.

Brazilian potash demand so far this has been a "positive surprise" Agrium said, but the uncertain political and economic situation there will remain a source of uncertainty for the market over the rest of the year.

China negotiations ongoing

Agrium is a member of the North American potash cartel Canpotex, which is currently in negotiations with China over the price for potash in 2016.

These negotiations are hugely influential in global potash markets, as they are one of number of major deals between selling and buying cartels as a benchmark for other supply contracts.

But the system has been in turmoil, following the collapse of BPC, a similar cartel between Russian and Belarussian producers, in 2013.

The negotiations, which until the collapse of BPC were usually completed in January or February, have been more protracted every year, and some have even suggested that Chinese buyers may refuse to sign a Canpotex deal this year.

Agrium said the ongoing negotiation "continues to add uncertainty to the global potash market".

"Chinese import volumes will be an important driver of the potash market in the second half of 2016".

Potash Corp trims expectations

Last week Potash Corp, another member of Canpotex and North America's largest potash producer, cut its forecast for full-year earnings per share to 60-80 cents, compared to an earlier forecast of 90-120 cents.

Potash Corp also reduced its forecast sales volumes, which slumped in the first three months of 2016.

Potash Corp boss Jochen Tilk told reporters that the danger of China failing to sign a deal was very slim, but was unclear on when the agreement would come.

Earnings fall

On Tuesday Agrium reported net earnings at $2m over the first three months of 2016, down from $12m a year earlier.

Adjusted earnings were 5 Canadian cents a share, a cent below analyst expectations.

Agrium's total sales fell by 5%, to $2.72bn.

By Agrimoney.com

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