Grain prices push Agrium profits near record

Rising global grain prices have led fertilizer and ag retail giant Agrium to post its second-highest quarterly net earnings with “strong” fertilizer demand to come.

The Calgary company on Wednesday announced net earnings of $506 million on $4.431 billion in gross sales (all figures US$) for its second quarter ending June 30, up from $370 million on $4.14 billion in the year-earlier period.

“This was particularly impressive given the record level of unseeded acreage in Western Canada and excessive moisture conditions in the U.S. Corn Belt in late spring,” CEO Mike Wilson said in a release Wednesday.

But global grain prices have “risen considerably” over the past month, on concerns over drought conditions in Europe and Russia and significantly lower acreage on Canada’s Prairies, he said. U.S. corn ending inventories have been also revised downward twice so far this year, he noted.

“Strong agricultural fundamentals” should support the outlook for all crop inputs in the second half of 2010, he said, noting nitrogen and phosphate markets have also strengthened over the past month.

“We anticipate North American crop nutrient demand to be strong in the second half at both the grower and retail level, due to firming crop prices, weather-induced constraints on nutrient application this spring, an anticipated increase in U.S. corn acreage next year and the current low inventory level of crop nutrients in the U.S. retail system,” Wilson said.

“Could have been stronger”

The company’s EBIT (earnings before interest and taxes) from its retail arm, which includes major ag retailer UAP and its crop protection and seed businesses, was the second-highest on record and “could have been stronger if not for the extremely wet conditions experienced in the Corn Belt and Western Canada during May and June,” Agrium wrote Wednesday.

Agrium said it also posted its second-highest Q2 EBIT ever for its wholesale division, based largely on a “dramatic return” in potash demand in both domestic and international markets, plus higher purchase-for-resale sales margins and volumes, which “more than offset” the company’s lower profits off its nitrogen offerings.

The Reuters news service on Thursday noted sharp jumps in share prices for Agrium and its fellow fertilizer players, citing a 2.4 per cent share price jump by Saskatoon-based PotashCorp, a 2.5 per cent rise for Agrium, and jumps of 3.6 per cent and 2.7 per cent respectively for U.S. firms CF Industries and Mosaic Co.

PotashCorp last week also posted near-record Q2 profits of US$472 million on $1.438 billion in sales, up from $186.2 million on $856 million in the year-earlier period.

The jumps in fertilizer firms’ shares follow the Russian government’s drought-induced plans to ban wheat exports for the remainder of 2010 starting Aug. 15 — plans which in turn have propelled U.S. wheat prices to a 23-month high, Reuters noted.

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