Agrium Inc. announced that it has shut-in production at its Fort Saskatchewan nitrogen facility and has further curtailed production at other major nitrogen and phosphate plants in North America. The temporary curtailments are necessary due to a significant build in North American fertilizer inventories and declining available storage capacity.
Global nutrient and crop prices have weakened since early November when our second half guidance was issued and deferral of wholesale nutrient purchases has been significant. This has resulted in further sales volume reductions and production curtailments that will affect earnings contributions from our Wholesale business unit.
Retail nutrient sales volumes have also been impacted by purchase deferrals by farmers in the fourth quarter, but have been offset by higher per tonne margins. An inventory valuation adjustment for Retail is not anticipated at current nutrient prices. Our seed and crop protection businesses have not been impacted by the current situation, as the fourth quarter is a seasonally slower period for seed and crop protection sales.
"The late North American harvest, coupled with credit restrictions from international buyers and continued market uncertainties arising from reductions in global crop and nutrient prices, has impacted fall nutrient applications" said Mike Wilson, Agrium president and CEO.
"We believe grain fundamentals are stronger than current prices would indicate and that global food demand is unlikely to be significantly affected by a slower global economic environment," Wilson said. "Unprecedented reductions in fertilizer use this fall in both North America and globally has resulted in significant production curtailments and shutdowns and is expected to place extreme pressure on an already strained distribution system next spring. It is unclear whether distribution systems, particularly in North America, will be sufficient to meet spring demand; however, we anticipate that this will highlight the benefits of Agrium's extensive distribution network. Additionally, any reductions in crop inputs or seeded acreage will only put more upward pressure on crop prices and crop input demand in the future."
Agrium reaffirms that it expects earnings for the second half of 2008 to be within our guidance range of $3.30 to $4.00 per share. Reduced wholesale volumes and pricing and expected inventory valuation adjustments in our wholesale purchase for resale business could reduce our results from operations by as much as 15 percent below the low end of our guidance range. This reduction is anticipated to be offset by non-cash gains relating to our foreign currency denominated working capital position.