Low prices cut fertilizer makers’ profit

Second quarter net earnings for PotashCorp fell 71 percent, while Mosaic Co. reported a loss of $10 million

North America’s biggest fertilizer companies reported large drops in quarterly profits last week.

Two companies, Agrium Inc. and CF Industries Holdings, warned of tough times ahead as abundant supplies weighed on prices.

However, Mosaic and PotashCorp indicated the worst might be over, at least in the potash sector.

“We believe the uncertainty that weighed on potash market sentiment is now lifting and a recovery is beginning,” PotashCorp chief executive officer Jochen Tilk said in a statement.

Agreements to set prices for potash sales to China and India have been delayed this year, reducing exports of the nutrient.

Canpotex, the marketer for PotashCorp and other potash producers, now has an agreement with India and is in negotiations with China, leading to expectations for an increase in exports in the second half of the year.

Tilk said fertilizer prices are cheap compared to crop income, which gives the world’s farmers an incentive to use more fertilizer. However, to conserve cash, the company cut its dividend payment by 60 percent.

PotashCorp’s second quarter net earnings fell 71 percent to US$121 million, or 14 cents per share, from $417 million, or 50 cents per share, a year earlier.

It cut its full-year profit forecast to a range of 40 to 55 cents per share from 60 to 80 cents. The midpoint, 47 1/2 cents, would be its weakest profit in 12 years.

The company, which shut down its New Brunswick mine this year, may idle others once it completes expansion next year of its lowest-cost mine at Rocanville, Sask., Tilk told analysts.

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Mosaic Co. reported a second quarter net loss of $10 million, down from net earnings of $391 million in last year’s second quarter. Revenue fell 32.7 percent to $1.67 billion.

Results in the quarter included after tax charges of $69 million related to actions the company took to lower spending on capital projects and reduce expenses.

It idled production in July at its potash mine near Colonsay, Sask., for the rest of the year.

“While the environment is challenging, we see signs of stabilization in the second half of the year, with fertilizer prices bottoming and solid demand for our products,” said Mosaic president Joc O’Rourke.

Profit at Agrium dropped by a lesser amount, down 16 percent, because its farm retail business softened the blow of weak nitrogen and potash prices.

However, it too lowered its profit guidance for the year. Agrium is in the process of buying 18 Cargill AgHorizon farm supply outlets in the United States to add to its Crop Protection Services network.

Agrium’s net earnings fell to $564 million, or $4.08 per share, in the second quarter, from $674 million, or $4.71 per share, a year earlier.

The Calgary company reduced its forecast for 2016 profit of $5 to $5.30 per share from an earlier range of $5.25 to $6.25.

Nitrogen prices have been pressured by China’s growing exports of urea and new capacity coming on stream in North America.

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However, Agrium president Charles Magro, said 60 percent of global capacity is uneconomic at current low nitrogen price levels.

“Much of this is in China, which is the highest cost exporter of nitrogen products in the world,” he said.

“This has resulted in a significant reduction in Chinese production and export levels over the past few months.”

Magro also said the big crop in the United States will draw down nutrient levels in the soil. The company expects strong sales for fall-applied fertilizer, particularly given that at this point it looks like the U.S. will have an early harvest, leading to a long fall fertilizer application season.

Second-quarter profit at U.S. nitrogen producer CF Industries Holdings Inc. fell 87 percent, and it warned that prices would likely remain weak into next year.

CF’s expanded urea and UAN plants in Louisiana and Iowa may start producing in the third quarter, the company said.

CF chief executive officer Tony Will said the company would suspend share buybacks and allow its current authorization to expire in December.

Net earnings for CF’s second quarter fell to $47 million, or 20 cents per share, from $352 million, or $1.49 per share, a year earlier.

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