Ukraine drought overshadows Agromino's return to the black


Shares in Agromino jumped after the former Soviet Union farm operator unveiled its first quarterly profit in two years - although the recovery was overshadowed by Ukrainian dryness, which it acknowledged had cut corn and soybean yield hopes.

Shares in Agromino, formerly known as Trigon Agri, rose 6.3% to SEK23.40 in early deals in Stockholm, before easing back to SEK22.70, a gain of 3.2%.

Even so the stock remains down 99% on the equivalent of SEK2331 reached in January 2008, during the ag market boom ahead of the global financial crisis.

Trigon Agri suffered particularly badly from the downturn which followed, undermined by factors including weather-reduced yields, writedowns, default on a fertilizer delivery contract and heavy borrowings, which it has restricted through measures including a debt-for-equity swap.

The hangover from the restructuring remains, with Simon Boughton, the group's chief executive, revealing that "the intention is to fully repay" by Friday a bridge loan provided by a consortium of larger shareholders, "the facility having been used as necessary from April this year".

Back into the black

The latest gains in the shares - which have near-doubled from a low reached in December amid elevated fears over the group's future – followed the group's release of results showing earnings of E10.3m for the April-to-June quarter.

This contrasted with a loss of E5.96m a year before, and indeed represented the first quarter in profit since the April-to-June period of 2015.

The improvement reflected in part one-off factors, including a dent a year-ago from the sale of land in Rostov, Russia, for E13.3m, a price below that the land had been valued at in the group's books, and attracting a currency hit too.

'Strong rapeseed yields'

However, Mr Boughton flagged too benefits from factors including reviving milk prices, which saw the group take a contribution of E400,000 from its minority share in the Trigon Dairy Farming Estonia, compared with a E1.4m loss a year before.

The improvement reflected a 31% rebound to E0.42 a kilogramme in the unit's average milk sales price, as averaged over the first half of 2017, as well as a 9.4% rise in milk production

Furthermore, with its debt reduced, Agromino was paying lower interest cost.

And the group highlighted too "strong rapeseed yields", which came in at a company record of 1.91 tonnes per hectare, up 34% year on year.

'Six-year low in rainfall levels'

Agromino's wheat yield, at 4.00 tonnes per hectare, was also higher than a year ago, by 4.4%.

However, the group said it had cut its forecasts for autumn-harvested crops, such as corn, soybeans and sunflowers, thanks to dryness particularly evident in its Nikolaev operations, in southern Ukraine, "where there has been a severe drought".

Mr Boughton said that the group's full-year results "will almost certainly be affected by a six-year low in rainfall levels across all of our Ukrainian clusters," besides by the devaluation of the dollar, the currency in which the group sells most of its crops.

Corn, sunflower and soybean crops "were established to a high standard, but they are beginning to show signs of stress due to the lack of precipitation".

The sunflower yield, forecast at 1.99 tonnes per hectare, was seen falling 12.7% to the lowest in at least five years, with corn expected to come in at 6.16 tonnes per hectare, a drop of 26% year on year.

Growing concerns

The forecasts come amid a growing market focus on Ukraine's drought, which is viewed internationally as particularly important for the corn market, given that the country is the world's fourth-ranked exporter of the grain, after the US, Brazil and Argentina.

Last week, both the European Union's Mars agricultural meteorology division and the International Grains Council cut forecasts for the Ukraine corn yield, although the latter also increased its area estimate.

Earlier this week, Ukraine's state weather centre cautioned that the country's corn harvest could fall some 10-15% below initial expectations.

The centre last month pegged the harvest at 25.5m-26m tonnes, down from 28m tonnes in 2016.


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