Citing slow customer demand, Agrium Inc. said on Sept. 23 that it expects third quarter 2013 Wholesale volumes to be off for all three major nutrients. Wholesale nitrogen sales volumes are expected to be down 20 percent and phosphate and potash about 30 percent, lower than normal for a third quarter.
Agrium said soft nutrient prices and lower sales volumes will lead to Wholesale’s EBIT being $200 million below third-quarter 2012. However, Agrium’s Retail EBIT is expected to surpass the third quarter of 2012 and is anticipated to be in-line with the strong results achieved in the third quarter of 2011.
Agrium said plant outages at its nitrogen facilities impacted volumes by approximately 100,000 mt this quarter, which also impacted costs. It said benchmark nutrient prices in the third quarter of 2013 are 20-30 percent below the same period last year. Retail nutrient inventories were low at the end of the spring season and Agrium said Retail is in a good cost position from an inventory perspective for its nutrient products overall.
Agrium Chief Operating Officer Chuck Magro said last week that there is a lot of uncertainty in the market, more than usual, which has put pressure on prices. “There is uncertainty in the size of the corn crop, the amount of urea exported by China, phosphate demand in India, and the Russian potash strategy,” he said speaking to attendees of the Scotiabank Agriculture and Fertilizers Conference Sept. 24. “However, most of the uncertainty is well reflected in the current pricing levels.” He said the bottomline is that growers across North America are in sound financial shape and still have strong incentives to maximize yields by optimizing their inputs," he said.
He noted that a lot of retailers have adopted a wait-and-see attitude and have not bought their fall needs. He said Agrium’s own Retail business has just started to fill up and has lower inventories than normal because it thought that prices were going to go lower, and it was right. He said he did not see further price depreciation to the point where Agrium would have to issue write-downs on product.
Asked what would happen should corn prices drop below $4.00 per bushel, Magro said growers would likely pull back first on higher-end portfolio applications and specialty fertilizers. However, he said the first sign of any change would be declines in cash land prices and equipment sales. “I think that you’d have a significant structural change before they pull back on inputs.”
Magro also cited specific pluses that Agrium enjoys in Wholesale NPK and Retail. As for potash, he said the company’s new 1 million mt/y of capacity should come up in late 2014, bringing capacity up to 3 million mt/y. And unlike its Canpotex Ltd. peers, he said Agrium can run at much higher operating rates as this can feed into its Retail business. On phosphate, he noted the company’s $140/mt regional in-market price advantage over Florida competitors. On nitrogen, he noted the company’s use of AECO gas which has about a $1.00/mmBtu advantage over NYMEX and that even at $300/mt urea, its margins are $150/mt. On Retail, he touted that the company has an 18 percent U.S. market share with only 12 percent of the actual physical facilities, as well as Agrium’s recent approval to acquire 210 Canadian outlets from Viterra Inc. Retail still continues to grow with a tuck-in strategy that has added 19 locations in the U.S. and Australia so far this year.
Citing long-term fundamentals and its annual strategic review process, Agrium said it has opted to increase dividends by $1.00 U.S. per common share to a total dividend of $3.00 U.S. per common share on an annualized basis. Based on the closing price of Agrium’s shares Sept. 20, this represents a dividend yield of 3.3 percent. The increased dividend is expected t