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
ManagementMACA 2014: The State Of The Agricultural Industry, And Then Some
October 9, 2014
The trade association’s annual gathering featured speakers from across agriculture and beyond. Read More
StewardshipA Multi-Layered Approach To Water Quality
October 6, 2014
Illinois event highlights research and technology designed to better monitor and improve water quality — and the benefits of cooperative, coordinated effort. Read More
StewardshipMichigan Agriculture Leaders On Toledo Water Ban: We Want To Be Part Of The Conversation
August 8, 2014
Leaders of Michigan agricultural organizations said Thursday that the government should not have a “knee-jerk reaction” based on last weekend’s water ban in Toledo due to fertilizer run-off in Lake Erie. Read More
ManagementRussia Bans U.S. And EU Ag Product Imports In Ukraine Sanctions Battle
August 7, 2014
Russian President Vladimir Putin has banned the import of agricultural goods from countries that have imposed sanctions on Russia. Read More
Top 100 Articles
Milan Kucerak, president/CEO, West Central
CropLife 100West Central Cooperative And Its New President Are A Match Made In Deviation
June 29, 2015
To appreciate just how unique West Central Cooperative is in the world of ag retail, an observer need only consider Read More
Winter Wheat
CropLife 100South Dakota Co-op Member Owners Vote No On Unification
June 26, 2015
The Boards of Directors for North Central Farmers Elevator (NCFE) and Wheat Growers (WG) have announced that member-owners have voted Read More
CropLife 100The Andersons Acquires South Dakota Plant Nutrient Manufacturer Kay-Flo
May 20, 2015
The Andersons, Inc., ranked No. 22 on the CropLife 100, has purchased Kay Flo Industries of North Sioux City, SD. “This Read More
CropLife 100North Central Farmers Elevator, Wheat Growers Unification Approved By Board, Still Awaits Member Approval
May 13, 2015
The Boards of Directors for North Central Farmers Elevator (NCFE) and Wheat Growers (WG) have voted to approve the Unification Read More
CropLife 100AgGateway’s Barcoding Initiative Progressing Nicely
May 8, 2015
According to legend (or Wikipedia), the first step towards modern bar codes came back in 1948, when Bernard Silver, a Read More
CropLife 100Pinnacle Agriculture Acquires Minnesota Retailer
April 14, 2015
Pinnacle Agriculture Holdings, LLC, ranked No. 6 on the CropLife 100,  has successfully acquired Liebl Ag, LLC in Ada, MN.  Read More
Latest News
Crop InputsLand O’Lakes, United Suppliers To Merge Crop Inpu…
June 29, 2015
Land O’Lakes, Inc. and United Suppliers, Inc. of Ames, IA, today announced their intent to merge their crop inputs businesses. Read More
FungicidesHelena To Distribute Unique Summit Agro Fungicide
June 29, 2015
RANMAN 400 SC fungicide, the only fungicide with a FRAC group 21 designation, is now part of the innovative Summit Read More
Eric SfiligojIARC Targets 2,4-D In Latest Report
June 29, 2015
The International Agency for Research on Cancer (IARC) has struck again. Earlier this year in March, this agency of the Read More
Milan Kucerak, president/CEO, West Central
CropLife 100West Central Cooperative And Its New President Are A Ma…
June 29, 2015
To appreciate just how unique West Central Cooperative is in the world of ag retail, an observer need only consider Read More
EquipmentCase IH Launches New Precision Air 5 Series Carts
June 29, 2015
Case IH recently introduced its new Precision Air 5 series air carts, developed to get the most from every plant’s Read More
InsecticidesVestaron Biopesticide Approved In California
June 29, 2015
Vestaron Corporation, a developer of insect control products derived from naturally occurring peptides, today announced that its VST-006330-EP biopesticide has received Read More
InsecticidesValent’s Zeal SC Miticide Receives EPA Approval
June 29, 2015
Valent U.S.A. Corporation announced today that Zeal SC Miticide has been registered by EPA with a new liquid formulation that Read More
Retail FacilitiesUnited Prairie Increased Plant Productivity With Junge …
June 29, 2015
Since 1979, Junge Control continues to provide ag retailers with highly accurate fluid and dry ingredient measuring, mixing and tracking Read More
Winter Wheat
CropLife 100South Dakota Co-op Member Owners Vote No On Unification
June 26, 2015
The Boards of Directors for North Central Farmers Elevator (NCFE) and Wheat Growers (WG) have announced that member-owners have voted Read More
ManagementAsmark Training Center Visit & A Merger No Go
June 25, 2015
CropLife Editor Eric Sfiligoj talks about a visit to the Ford B. West Training Center and the failure of the Read More
Crop InputsWinField: Here’s What We’re Seeing So Far T…
June 25, 2015
One of the most important things you can do throughout the season to help increase yield potential is to ensure Read More
Valent, Commodity Classic 2015
Industry NewsValent Garners FFA Honor
June 23, 2015
Valent U.S.A. Corporation today announced it has been named a 5-star member of the National FFA Foundation. This includes an Read More
Nester Ag intern Brad Nester
Crop InputsOhio NRCS’ New Conservation Practice Standard For Gypsu…
June 22, 2015
Ohio farmers wishing to use gypsum to improve soil quality now have access to technical information and possible financial assistance Read More
Industry NewsWest Central Creates New Executive Team
June 22, 2015
West Central Distribution, LLC officially announced the development of an executive team comprised of Dale Engan, chief executive officer; Michael Read More
MicronutrientsVerdesian Life Sciences Invests In People, Agricultural…
June 22, 2015
In mid-February, the USDA released its new 10-year agriculture projections. While the numbers are new, the theme was consistent. The Read More
Young corn plants
Crop InputsStudy: Crop Rotation Has Positive Impact On Soil Microb…
June 22, 2015
A study authored by Michigan State University (MSU) Department of Plant, Soil and Microbial Sciences assistant professor Lisa Tiemann is Read More
Crop InputsIndiana NRCS Unveils Interim Gypsum Practice Standard
June 22, 2015
Indiana farmers wishing to use gypsum to improve soil quality as part of on-farm conservation programs now have access to Read More
ManagementInside Monsanto’s Bid for Syngenta
June 18, 2015
Monsanto’s possible buyout of Syngenta could send ripples through the retail chain. Learn the latest developments with Retail Week guest Read More