Brazil 'key region to monitor', thanks to dryness, says Agrium

09.11.2017

Agrium highlighted the importance to agriculture markets of rains in Brazil as it unveiled a larger than expected loss, reflecting “challenging” weather patterns, besides longer-than-expected ferttilizer shutdowns for maintenance.

The Canada-based fertilizer group unveiled weather setbacks to its retail operations in a number of regions, with acquisitions supporting an 11.3% rise to $2.07bn in the division’s sales in the July-to-September period and 9% growth to $110m in ebitda.

Indeed, in the international division, ebitda eased “as Australia faced drought conditions, which impacted crop protection sales in particular”, said Agrium, which is merging with fertilizer rival PotashCorp.

“South American results were also down slightly, primarily due to excessive moisture impacting nutrient applications,” Agrium said, a reference to the unduly wet conditions in Argentina and southern Brazil, the country’s main area for growing wheat, which is currently being harvested.

‘Key region to monitor’

The group also flagged the setback to retail growth from “challenging weather conditions” in the southern US, which sustained damage from two major hurricanes, and dryness in Canada’s Prairies too.

Chuck Magro, the Agrium chief executive, said that “our results this quarter were impacted by… extreme dry weather in Canada and Australia and the two hurricanes in the southern US”, besides by a “particularly intense summer maintenance schedule” at its wholesale fertilizer operations.

And, looking ahead, the group highlighted that a “key region to monitor in the months to come is the dryness in parts of Brazil”, a lack of rain which is “delaying soybean planting”.

‘Sowing in dry soil’

According to Safras, farmers had as of last week seeded 43% of their soybean crop, for harvesting earlier in 2018, compared with 53% a year before.

While representing a sharp acceleration from the previous week, when 30% of soybeans had been planted, speeded by the onset of wetter weather in many areas, conditions remain dry in some regions.

Research institute Cepea reported rains “below ideal” levels in Goiás and Minas Gerais states, “limiting fieldwork”, and noted reported of “insufficient” moisture in Mato Grosso do Sul.

“In São Paulo State, growers started sowing in dry soil, expecting rains,” Cepea said, highlighting too some recovery in prices amid “speculation of possible delay of the 2017-18 [harvesting] season, due to late sowing”.

Prices in the port of Paranagua, at R$73.82 per 60-kilgoramme bag as of Tuesday, were up 4.6% over the past month.

‘A bit suspect’

The sowings uncertainty has been attributed with encouraging a further reluctance by growers to sell crop forward, with Cepea noting that although farmers had begun “selling larger batches” of crop forward, “the volume traded is smaller than that in [2016-17], when the pace of anticipated sales was slow as well”.

According to Safras, farmers have hedged 19.1% of their expected 2017-18 soybean production, below the figure of 25% a year ago, and the average of about 29% at this time of year.

In fact, the key central Brazilian soybean belt is expected to see showers over the week, with World Weather saying that “the driest areas in and around Mato Grosso”, the top soybean-growing state, “should see enough rain to at least temporarily improve soil moisture and conditions for crops”.

“But the second week of November still shows a dry bias for most of Brazil, which could gradually underpin soybean prices,” said Terry Reilly at Chicago broker Futures International.

Benson Quinn Commodities also said that while the short-term outlook appeared “favourable… the extended forecasts hints at the drier weather profile returning to portions of northern and central Brazil towards the end of the month.

“Brazilian weather looked a bit suspect on long-range models.”

The potential for a La Nina weather pattern, which has a history of bringing dry weather to central Brazil, has added to concerns over dry weather outlooks.

‘Solid grower demand’

However, Agrium flagged a boost to its prospects from some recovery in crop prices, from levels that, in the spot market, “have been pressured by higher yield expectations”.

“New crop 2018 futures prices are significantly higher than spot prices, boosting prospective margins” for farmers, and so the outlook for agricultural suppliers.

While trimming its forecast for full-year earnings per share to $4.65-4.80, from $4.75-5.25, reflecting a bigger-than-expected loss in the latest quarter, Agrium flagged cause for optimism in both fertilizer and retail markets, notably in North America.

“Looking at the fall season and into 2018, we see solid grower demand for fertilizer and other crop inputs, and expect fertilizer markets to demonstrate continued strength,” Mr Magro said.

For the July-to-September period, Agrium reported a loss of $0.23 per share, well above market expectations of a $0.05-per-share loss.


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