Viterra Inc.’s Agri-products segment, which includes fertilizer and other agricultural inputs, continued its strong performance in the first quarter ending Jan. 31, 2012.
Agri-product EBITDA was up 45 percent, to C$15.3 million from the year-ago $10.6 million. Adjusted gross profit for the segment was $62.5 million on revenues of $417 million, up from the year-ago $53.5 million on revenues of $292.6 million.
Fertilizer revenues were up 40 percent, to $244.3 million from the year-ago $175 million. Fertilizer margins per mt were up 31.5 percent, to $129.79 from the year-ago $98.71, while volumes were up 4.5 percent, to 390,000 mt from 373,000 mt.
Viterra President and CEO Mayo Schmidt told analysts what made first-quarter fertilizer margins particularly strong was the fact that last fall there was an early harvest in Western Canada. “We had great weather and as such it gave the farmers an opportunity to put down a lot of ammonia in November. And with the ammonia a lot of that is our own manufactured ammonia, so that drove the fertilizer margins up significantly.”
Going forward, Viterra told analysts that it is bullish on fertilizer, even more so than when it reported earnings last quarter, and it expects fertilizer volumes to be up in 2012. It said historically strong grain prices should continue to drive solid returns for producers, as well as demand for crop inputs. In addition, Western Canada seeded acreage is expected to increase, which should be beneficial for crop input demand.
Viterra says in Western Canada the majority of the 6-8 million acres that were affected by excess moisture in the spring of 2011 is expected to return to production in the upcoming season. Barring further adverse weather conditions, Viterra is forecasting Western Canadian seeded acreage will total approximately 57-59 million acres in 2012, an increase of about 8-10 percent from last season. This forecast is still below the 10-year average of about 60 million acres.
Viterra is also bullish on canola, which is a heavy user of fertilizer. The company believes those acres will range from 18.5-19.5 million, up from the year-ago 18.5 million.
In addition to increased acreage, Viterra believes high commodity prices will spur increased application rates overall, and that margins will also be positively impacted by low natural gas prices. Viterra is forecasting fertilizer margin guidance of $115-$135/mt for fiscal 2012.
Viterra also sees fertilizer prices moving up. “Urea pricing has been somewhat weak up until about two weeks ago,” said Doug Wonnacott, senior vice president, Agri-products. “However, as we saw product begin to move in the Southern U.S., we’ve seen a significant uptick in the urea price so that pricing now in the U.S. Gulf is north of $500/st FOB. So that’s going to have a significant impact.
“And then on the gas side … we’ve seen a significant decrease in the price of natural gas. We are now down below $2 per gigajoule, and that is going to enhance our manufacturing margins significantly for both ammonia and urea.”
Wonnacott also noted that the company is growing its ag input business in Australia, adding four outlets in 2011, with expectations of adding four-to-six more in 2012, which will either be standalone or associated with existing grain handling facilities. “We are also continuing to look at acquisition opportunities, and we are spending a lot of time with a lot of independent operators there.”
As of last summer (GM June 13, 2011, p. 11), Viterra said it operated 16 Agri-product depots in Australia, along with six fertilizer warehouses in South Australia and Victoria.
Viterra operates approximately 260 retail outlets in Western Canada and owns a 34 percent stake in Canadian Fertilizer Ltd., the nitrogen plant in Medicine Hat,