AgroPages-Nufarm: shrinkage of Brazil's seeds and sprays market hurts company’s performance-Agricultural news

The shrinkage in Brazil's seeds and sprays market, which has hurt groups from US-DuPont to Switzerland's Syngenta, could reach 20% in dollar terms, Nufarm said, bracing investors for a fall in its half-year profits.

Weather setbacks - which have seen southern producers grapple with torrential rain during the ongoing sowing season while some areas further north have been too dry have added to the challenges facing farm input companies from a weak real, Nufarm said.

"In Brazil, sales are being impacted by weather wet in the South and dry in the Central and Northern regions," Greg Hunt, the Australia-based group's chief executive, said.

"Total market value, in US dollar terms, is expected to be down 15-20% on the prior year, due to the rapid depreciation of the Brazilian real and associated market competition."

Difficult times

The decline comes despite sanguine expectations for plantings of major crops in Brazil, with the weakness of the real protecting domestic crop values from the fall in dollar-denominated international markets.

"We expect total soybean planted area to grow by approximately 3% and for corn planted area to be flat across the year," Mr Hunt said.

However, it follows a string of cautions from Western seed and agrichemical groups such as KWS, Syngenta, DuPont, the owner of Pioneer, and Arysta owner Platform Speciality Products over dents to their profit hopes from difficulties in the Brazilian market.

Some have cited strong Brazilian inventories as an extra setback, with buyers having stocked up early in the year, in expectation of weakness of real, which makes dollar-denominated imports such as fertilizers and seeds more expensive.

Currency hit

Mr Hunt said that Nufarm itself had achieved higher Brazilian sales - in local currency terms - in the August-to-October period, the first quarter of its financial year, despite tightening its credit policies, which has meant some trade "being forfeited".

However, sales were "slightly down" in Australian dollar terms.

And, with the group also revealing a foreign exchange loss of Aus$10m, "mainly due to the extreme volatility of the currencies in South America and the high cost of hedging those exposures," Nufarm was expecting to report a decline in underlying earnings for the August-to-January half.

The decline would come despite a "slight" increase in European sales in the first quarter, helped by "positive" autumn weather conditions, and a "positive" performance in North America despite a tough market.

"The decline in soft commodity prices and higher distribution inventories, have created a very competitive environment in North American market," Mr Hunt said.

Stockmarket roller coaster

Indeed, Mr Hunt said that Nufarm was, at an underlying operating profit level, likely to interim results at least in line with those a year before.

"This will leave us well placed to deliver underlying [operating profit] growth for the full year," to the end of July 2016, he added.

The statement provoked a huge volatility in Nufarm shares, among investors who have forecast an 18.3% rise to Aus$123.9m in group earnings for the full financial year, on revenues up 3.8% Aus$2.84bn.

Nufarm shares swung from a 4.1% gain to a 6.5% loss, before ending at Aus$8.25 in Sydney, a decline of 2.8% on the day.