Report: North American Agrichemical Cash Reduces Near-Term Risk

Fitch Ratings published a special report entitled ‘Agricultural Suppliers Harvesting Ag Boom Benefits’ outlining the advantageous position of North American agrichemical issuers. Several years of robust U.S. farm economics in combination with incentives to plant more corn have allowed North American agrichemical suppliers to benefit. Demand is very robust for fertilizer, seeds and productivity in light of historically high planted acres.

Furthermore, North American nitrogen fertilizer producers are benefiting from the shale gas boom. Natural gas, which is the primary feedstock and largest cost component for nitrogen fertilizer, is abundant and cheap. Diammonium and monoammonium phosphate producers are also benefiting, especially if they are backward integrated ammonia producers using natural gas.

Agrichemical companies have generated substantial free cash flow in recent years and accumulated cash balances. As a result, share buyback programs have either started and/or increased. With nowhere for accumulating cash to go, companies have turned to increasing dividends and share buyback programs, as alternate uses for funds including acquisitions are sparse. Share buyback programs are generally easier for companies to reduce or stop than dividends, but agrichemical producers have cut dividends when under significant earnings pressure.

Record sums of cash have been earmarked for additional production, brownfield and greenfield expansions, and research. There is some concern that supply could outrun demand. Lofty fertilizer prices in the recent past coupled with inclement weather has resulted in some demand destruction. This in turn has pushed fertilizer prices lower and lowered returns on new investment and given pause to some capital expansion plans.

The European potash cartel breakup could pressure prices. Potash production volumes and sales could ramp up next year which would pressure prices with Uralkali announcing its decision to leave its marketing arrangement with Belaruskali. Total potash production capacity is limited and freight costs provide geographic advantage, so even high-cost potash producers are expected to remain profitable but less so. Current ratings incorporate expectations for lower potash prices than last year’s highs.

Financial risk within the industry is expected to remain low as long as strong macro agronomics prevail. The full report ‘Agricultural Suppliers Harvesting Ag Boom Benefits’ is available on the Fitch Ratings’ Website.

Leave a Reply

Management Stories

ManagementUpdates on Glyphosate Use in the EU and Bayer/Monsanto
June 29, 2016
Editors Paul Schrimpf and Eric Sfiligoj discuss the latest important developments on these crop protection fronts. Read More
The Andersons Waterloo
ManagementFirst Indiana Facility Certified Under 4R Nutrient Stewardship Certification Program
June 27, 2016
The 4R Nutrient Stewardship Certification Program has announced that The Andersons, Inc.’s Waterloo, IN, facility has been added to its Read More
ManagementReport: U.S. Farmland Values On Average Continue Gradual Decline
June 27, 2016
Land price movement has been in the forefront for farmers, landowners, lenders and land brokers for a decade now during Read More
Trending Articles
The Andersons Waterloo
ManagementFirst Indiana Facility Certified Under 4R Nutrient Stewardship Certification Program
June 27, 2016
The 4R Nutrient Stewardship Certification Program has announced that The Andersons, Inc.’s Waterloo, IN, facility has been added to its Read More
Food IT
Industry NewsCalifornia Event Will Mix Ag And Tech Professionals To Explore IT Solutions
June 20, 2016
Silicon Valley is hot on agriculture, and an upcoming event in California will bring together the food and tech industries Read More
Monsanto Luling Plant
Eric SfiligojWhat’s Next For Monsanto?
May 31, 2016
For the folks at Monsanto’s headquarters in St. Louis, MO, it has been an eventful few weeks. Back on May Read More
Soybean Plant closeup
Industry NewsMonsanto Rejects Bayer Bid; Open To More Talks
May 25, 2016
Monsanto Co, the world’s largest seed company, turned down Bayer AG’s $62 billion acquisition bid as “incomplete and financially inadequate” Read More
Eric SfiligojPity The Monsanto Haters
May 23, 2016
An old saying goes thus: “Be careful what you wish for. You just might get it.” Given current events, there Read More
Monsanto Luling Plant
Crop InputsReport: Bayer Eyeing Monsanto For Possible Mega-Merger
May 16, 2016
Bayer AG is exploring a potential bid for U.S. competitor Monsanto Co. in a deal that would create the world’s Read More
Latest News
Heritage Cooperative
CropLife 100Heritage, Agland Co-op Explore Mutual Merger Interest
June 30, 2016
According to a report in The Ohio Country Journal, Heritage Cooperative and Agland Co-op have entered into negotiations to consider Read More
Soybean Plant closeup
Crop InputsDow Launching New Soybean Burndown Herbicide
June 30, 2016
With the 2016 growing season nearing the halfway mark, many growers are scouting soybean fields to find unwelcome marestail plants Read More
ManagementUpdates on Glyphosate Use in the EU and Bayer/Monsanto
June 29, 2016
Editors Paul Schrimpf and Eric Sfiligoj discuss the latest important developments on these crop protection fronts. Read More
Industry NewsCompass Minerals Names Protassium+ Sales Director
June 28, 2016
Compass Minerals, the producer of Protassium+ sulfate of potash, has named Scott Johnson director of sales for Protassium+ North America. Read More
Eric SfiligojThe British Leave Vote Impact On EU Agriculture
June 27, 2016
Like virtually everyone else in the world this past week, I’ve watched the global reaction to Britain’s vote to exit Read More
Valent David Nothmann
Crop InputsValent Names David Nothmann Vice President Of Marketing
June 27, 2016
Valent U.S.A. Corp. has announced the appointment of David Nothmann as vice president of marketing. Nothmann will be responsible for Read More
The Andersons Waterloo
ManagementFirst Indiana Facility Certified Under 4R Nutrient Stew…
June 27, 2016
The 4R Nutrient Stewardship Certification Program has announced that The Andersons, Inc.’s Waterloo, IN, facility has been added to its Read More
CropLife 100BRANDT Contributes To Mayo Clinic
June 27, 2016
BRANDT, a leading agriculture retailer and manufacturer of specialty agriculture products, has pledged a sizable donation to the Mayo Clinic Read More
ManagementReport: U.S. Farmland Values On Average Continue Gradua…
June 27, 2016
Land price movement has been in the forefront for farmers, landowners, lenders and land brokers for a decade now during Read More
AdjuvantsPrecision Laboratories Introduces Intact Xtra For Use W…
June 27, 2016
Precision Laboratories announces the launch of Intact Xtra, an adjuvant designed for applicators who want to maximize spray applications and Read More
Key Cooperative’s new liquid fertilizer, crop chemical, and seed facility in Grinnell, IA stores 1.5 million gallons of liquid fertilizer and 120,000 gallons of crop chemicals.
Retail FacilitiesKey Cooperative Facility Features The Latest In Murray …
June 27, 2016
When Key Cooperative wanted to improve the overall efficiency at its new state-of-the-art facility in Grinnell, IA, it turned to Read More
Allen Summers Asmark Institute PSM Training
EmployeesAsmark Institute Sponsors 25 ResponsibleAg Auditor Trai…
June 21, 2016
The Asmark Institute has announced plans to provide 25 scholarships through their affiliated State fertilizer and agrichemical associations to help encourage Read More
Kennebec Elevator
CropLife 100Wheat Growers Celebrates Kennebec Elevator Grand Openin…
June 21, 2016
Over 250 patrons and guests were on hand to celebrate Wheat Growers’ Kennebec Elevator grand opening. South Dakota Secretary of Read More
Land O Lakes
Industry NewsLand O’Lakes To Acquire Ceres
June 20, 2016
Land O’ Lakes, Inc. and Ceres, Inc. have announced that they have signed a definitive merger agreement under which Land O’Lakes Read More
Food IT
Industry NewsCalifornia Event Will Mix Ag And Tech Professionals To …
June 20, 2016
Silicon Valley is hot on agriculture, and an upcoming event in California will bring together the food and tech industries Read More
LegislationVilsack Christens WinField Crop Adventure, Talks Monsan…
June 17, 2016
The WinField Crop Adventure grand opening ceremonies at Fair Oaks Farms (near Winemac, IN) welcomed USDA Secretary of Agriculture Tom Read More
Crop InputsFields of the Future: WinField Doubles Down with Agri-E…
June 16, 2016
Land O’Lakes, Inc., joined by Agriculture Secretary Tom Vilsack, today will host Fields of the Future, a live broadcast about Read More