Owing to the slide in some nutrient prices in recent weeks, fertilizer giant Agrium has warned investors it expects to have to write down US$96 million in its retail operations in its fourth fiscal quarter.
Of that, $85 million is expected to come out of its North American retail operations and the rest from its South American retail business. In all, the expected write-down would amount to 41 cents per share (all figures US$), the Calgary-based company announced Thursday.
The “adjustment” in its North American retail business is expected to be due mainly to the gap in value between anticipated nutrient sales prices and prices that its North American retail division has contracted for pre-payments and other committed crop nutrient tonnage in 2009, Agrium said.
The company said Thursday it also expects a further $21 million write-down in its wholesale purchase-for-resale (PFR) business.
“These adjustments are indicative of the unprecedented volatility in global economic and commodity markets, and the decline in certain nutrient prices since early December 2008 when we issued updated guidance,” the company wrote in its release.
Agrium added that it doesn’t foresee any write-down relating to its manufactured wholesale volumes.
The $96 million retail and $21 million PFR write-downs weren’t part of Agrium’s last update to guidance, issued Dec. 8. That earlier update, however, did include a separate write-down worth about $90 million for Agrium’s PFR business in North America, South America and Europe.
Agrium said it’s now in the midst of restarting its Fort Saskatchewan nitrogen facility, just northeast of Edmonton, and is resuming “full rates” for urea production at its other Canadian facilities, citing “recent improvement” in urea demand.
As well, Agrium’s joint-venture Profertil nitrogen facility in Argentina “was returned to production this week after an extended turnaround,” the company said.
But Agrium said it continues to operate its phosphate and potash facilities at reduced production rates, as do other producers of those nutrients.
The company also noted that Argentina’s government this week announced a price agreement for most crop inputs with key agricultural suppliers, including Profertil and fertilizer retailer Agroservicios Pampeanos (ASP).
The agreement requires future crop input prices to be related to an agreed-upon normalized crop input price or margin and that changes in input prices and margins will occur in direct proportion to changes in crop prices.
For Profertil, the corresponding maximum urea price under current crop prices is about $390 per tonne at the warehouse.
“The agreement is not expected to have any material impact on our earnings profile for ASP or for Profertil at current world urea prices,” said Agrium, which owns ASP and also owns half of Profertil in a joint venture with Madrid-based oil and gas firm Repsol YPF.