Market and product

Cautious behaviour by fertilizer distributors preventedAgrium from feeling the full benefit from the early start to the North Americanspring planting season, which sent demand for many farm products soaring.

The Canada-based group, North America's biggest agriculturalretailer besides a major potash producer, said that its chain of farm storesachieved a 35% jump to $2.5bn in sales in the January-to-March period, a recordfor the quarter.

"This significant increase was a result of strong demand forcrop input products and services within North America, as growers and dealerstook advantage of one of the earliest starts to the spring season in history,"Agrium said.

The retail arm raised fertilizer sales by 46% to $1.0bn,while agrichemical sales rose 31%, and sales of seeds themselves soared 37%.

"We have seen strong movement of nutrients and other cropinputs, as some of Retail's business was brought forward into the first quarter,"Mike Wilson, the Agrium chief executive, said.

'Shipments down significantly'

However, Agrium's wholesale fertilizer division suffered a1.7% drop to $1.21bn in sales, and a 12.1% drop to $362m in earnings beforeinterest, tax, depreciation and amortisation (ebitda), reflecting lower profitsin phosphates and, in particular, potash, for which distributors relied onstored product.

Indeed, throughout the sector "potash shipments were downsignificantly in the first quarter due to cautious purchasing behaviour and theability of dealers to fill initial grower demand from inventories".

The group's own gross profits in potash tumbled 30% to $87m,reflecting lower sales volumes and a higher cost of what was sold, after the groupjoined the North American producers cutting back output in the face of softdemand.

Potash production throughout the North American industry,one of the two top manufacturing centres with Belorussia/Russia, was 25% less inthe first quarter of 2012 than a year before.

Cutbacks mean fixed overheads are spread over a smallproduction, and raised to $184 a tonne, from $147 a tonne a year before, Agrium'scosts of potash output.

The decline - coupled with a loss on natural gas hedges and an increase in the value of share-based staff incentives thanks to a rising Agrium stock price - depressed group earnings by 9.4% to $155m.

'Pent-up demand'

Agrium forecast a "rebound" in North American potash shipments,given the run down in distributor inventories, with "pent-up demand" emergingin South America and South East Asia too.

Nonetheless, the company estimated world potash shipments of52m-55m tonnes this year, at best matching 2011's 55m tonnes, "due to the lowlevel of potash shipments experienced in the first quarter".

The group also forecast that its own underlying earnings pershare – which at $1.32 beat Wall Street forecasts of a $0.99-a-share result –would come in at $5.50-$6.10 a share for the first six months of 2012.

The figure implies Agrium is likely to beat the $4.65 ashare Wall Street has plugged in for the April-to-June quarter.

Nonetheless, the group's shares ended 1.7% lower at Can$82.99in Toronto, on a weak day for global stocks.