Agrium anticipates strong demand, but lowers 2017 guidance amid price pressures
Calgary-based Agrium Inc, the world’s largest farm retailer, said it is encouraged by signs of a pickup in demand for crop nutrients as North American farmers look to replenish their soil after a year of record harvest.
“As we look into 2017, we see definite improvement in certain segments of the crop input market, however prices remain under pressure from last year’s record yields,” said Chuck Magro, Agrium’s president and CEO on a conference call Friday to discuss its fourth-quarter earnings.
The company believes strong demand for crops is helping to offset record crop production, helping keep prices stable. Crop prices influence the number of farm plantings, which in turn impacts fertilizer demand.
In Canada, it anticipates strong demand for nutrients this spring due to a shortened fall fertilizing season due to early frost.
Agrium expects growers to continue their cautious approach to spending more on crop inputs amid global uncertainty. Still, its outlook for 2017 was weaker than analysts’ had expected.
“We think the FY17 annual EPS guidance may be softer than some investors were expecting, with the range $4.50-$6.00 ($5.25 midpoint) close to our $5.20 forecast but below the $5.45 consensus,” Citi analysts wrote in a note.
Agrium expects U.S. acreage allotted for corn, a nutrient-intensive crop, to fall to between 90 million and 92 million acres, down slightly from 94 million acres in 2016 — resulting in a one to three per cent decline in nutrient demand and lower spending on seeds.
However, demand for grains and oilseeds is expected to grow by three per cent this year, more than half the annual average, Magro said.
Potash prices have languished around US$200 per tonne for the past year — from their highs of US$900 around 2008 — amid excessive global supply.
But after months of potash prices hovering around a 10-year low, drawdown on potash inventories has led to stronger demand into 2017, the company said. Agrium expects to produce between 2.4 million and 2.8 million tonnes of potash in 2017.
“We foresee a tight supplydemand situation through the spring,” Magro said.
“Our expectation is for global potash shipments to increase almost five per cent.”
The company saw 2016 full-year profit of US$592 million, a drop of 40 per cent from the US$988 million reported in 2015.
Agrium earned US$67 million, or 49 cents per share during the fourth quarter, a drop from the US$201 million, or US$1.45 per share it reported in the same quarter of 2015, largely due to lower year-over-year nutrient pricing, the company said.
However, adjusted earnings came in at 68 cents per share, inline with analysts’ forecast. But it projected 2017 full year earnings between US$4.50-US$6 per share. The midpoint of US$5.25 was below analysts’ average estimate of US$5.45. It saw particular strength in its retail sales, helped by the crop protection sales, especially the herbicide business.
The company is in the middle of a merger with fellow Canadian fertilizer giant PotashCorp. of Saskatchewan and says it is awaiting regulatory clearance from the U.S., China, Canada and India. Agrium expects the deal to close in mid2017. Financial Post sfreeman@postmedia.com