Agrium gears down fertilizer production

A “significant build” in fertilizer stocks across North America, with fewer places to put them, has led Agrium to temporarily wind down nitrogen production at Fort Saskatchewan, northeast of Edmonton.

The Calgary-based fertilizer giant says it has also “further curtailed” production at its other major phosphate and nitrogen plants in North America, noting in a statement Tuesday that the “curtailments” are temporary.

The company’s Fort Saskatchewan facility makes both anhydrous ammonia and urea fertilizers, with production capacity of 465,000 gross tonnes and 650,000 tonnes respectively. Its on-site storage can take about 38,000 tonnes of ammonia and 65,000 tonnes of dry fertilizer.

Fertilizer and crop prices worldwide have “weakened” since early November when Agrium put out its second-half guidance for investors, the company said.

A “significant” deferral of wholesale fertilizer purchases has followed suit, the company said. So has a decline in available storage capacity for pent-up supplies.

Furthermore, “the late North American harvest, coupled with credit restrictions from international buyers and continued market uncertainties arising from reductions in global crop and nutrient prices, has impacted fall nutrient applications” Agrium CEO Mike Wilson said in the company’s release.

Farmers putting off their retail fertilizer purchases due to weaker crop prices have also impacted Agrium’s sales volumes, but the lower retail volumes are offset by higher per-tonne margins, the company said.

“An inventory valuation adjustment for (Agrium’s retail business) is not anticipated at current nutrient prices,” the company said Tuesday.

Reduced fertilizer use this fall, both in North America and worldwide, has meant significant production curtailments and shutdowns and is expected to place “extreme pressure” on an already strained global fertilizer distribution system next spring, Wilson said.

“It is unclear whether distribution systems, particularly in North America, will be sufficient to meet spring demand; however, we anticipate that this will highlight the benefits of Agrium’s extensive distribution network.”

On top of that, he said, any reduction in crop inputs or seeded acres “will only put more upward pressure on crop prices and crop input demand in the future.”

In any case, Agrium said it still expects its earnings to keep within its guidance range of $3.30 to $4 per share for the second half of 2008. But that projection depends on assumptions that include:

  • wholesale fertilizer prices for the remainder of the fourth quarter “consistent with current market prices” and inventory valuation based on current market pricing;
  • retail and wholesale sales volumes well below fourth-quarter levels in 2007, due to weaker demand;
  • a scheduled maintenance shutdown at the company’s Profertil nitrogen plant for 40 days, plus lower production at North American wholesale facilities compared to the same time in 2007; and
  • natural gas prices, Canadian dollar values and tax rates sticking close to current rates.

About the author

Glacier FarmMedia Feed

GFM Network News

Glacier FarmMedia, a division of Glacier Media, is Canada's largest publisher of agricultural news in print and online.



Stories from our other publications