Despite four months of “unprecedented” shifts in nitrogen and phosphate prices, fertilizer giant Agrium has tripled its previous record for annual earnings.
And the company predicts that the recent dip in fertilizer demand will ultimately show up in reduced yields, leading to increases in both crop prices and demand for crop inputs.
The Calgary-based fertilizer maker and farm supply retailer on Wednesday posted a 2008 profit of US$1.32 billion on $10.27 billion in sales, up from $441 million on $5.49 billion in fiscal 2007 (all figures US$).
Profits for the fourth quarter (Q4) ending Dec. 31, 2008 were down, however, at $124 million on $1.99 billion in sales, compared to $172 million on $1.49 billion in sales in the year-earlier period.
“Our fourth quarter margins were excellent again this quarter, even with the challenges of reduced sales volumes and write-downs in inventories due to the unprecedented changes in phosphate and nitrogen prices over the past four months,” Agrium CEO Mike Wilson said in the company’s release Wednesday.
Looking ahead through 2009, “we believe the reduced crop nutrient use experienced over the past four months is not sustainable and that it will ultimately impact grain production and support crop prices and crop input demand,” Wilson said.
But the company said it still sees a “high degree of uncertainty about growers’ cropping decisions for the spring of 2009 within North America.”
Cash margins for crop producers remain “historically strong” for most grains and oilseeds, Agrium said, despite crop prices dropping from the summer highs. Drought in Argentina and lower fertilizer use in Brazil this year due to the global credit crunch are expected to impact South American crop yields — which in turn could help support crop prices.
Agrium said it expects “solid” demand for most crop protection products it sells, with “potential for some further price increases” in several products other than glyphosate. Growers in North America are expected to try to catch up this spring with input applications they had to defer last fall.
Looking ahead on fertilizer prices, Agrium reports a “significant build” in nitrogen inventories, citing Fertilizer Institute reports that North American urea inventories at the end of 2008 beat the previous five-year average by 83 per cent. But it noted the N market has shown “some improvement” in the past month.
Similarly, North America’s potash inventories began to rise during Agrium’s Q4 after sitting at “historically low levels” through most of 2008. Buyers later in the year had postponed their planned purchases, due in part to the global credit crunch.
Due to delayed purchases, Agrium estimated, over 30 per cent of global potash production was curtailed at the beginning of 2009. “We anticipate spring demand for potash to improve compared to last fall, but it is difficult to indicate the extent of the improvement.”
Similarly, production capacity equal to at least 30 per cent of global DAP and MAP demand was shut down at the beginning of 2009, in response to rising phosphate inventories due to reduced demand. U.S. DAP and MAP inventories at the end of December beat the previous five-year average by 86 per cent, Agrium said, again citing the Fertilizer Institute.
Agrium’s Q4 saw a substantial jump in net sales in its retail division, though the company warns it’s not a proper comparison as the 2008 Q4 included sales at UAP, the major ag retail firm Agrium bought in May. Q4 net sales were $1 billion, up from $555 million in the year-earlier period.
Q4 costs, however, included a $93 million writedown in the retail division, “primarily for purchase commitments of crop nutrients.”
The company’s wholesale division posted a Q4 record of $982 million in net sales, up from $908 million in the year-earlier period. But that increase came from higher sales prices for all three major crop nutrients, rather than from sales volumes, which dropped compared to 2007’s Q4.
Lower Q4 sales volumes in the wholesale business were due to the late harvest across much of North America, creating a “condensed” fall application season, Agrium said. As well, it cited growers’ uncertainty due to volatile crop prices last fall, and their expectation that crop nutrient prices will be lower this spring than they were last fall.
“Looking forward, we anticipate strong application rates for all nutrients in the U.S. this spring, with particular strength in the demand for nitrogen products and some recovery in nitrogen pricing,” the company said.