July 9, 2010

 

 

Canada's Viterra Inc. awaits a significant drop on its sales for fiscal year 2010 due to the unseeded acres and flood damage in the Western grainbelt.

 

"Weather conditions this year have been extremely difficult for our farm customers and we have done what we can to support them," said Doug Wonnacott, Viterra's senior vice-president of agri-products.

 

"The impact to our operations will be felt in the third quarter of fiscal 2010. Full year results will be dependent upon fall field activity,'' he added.

 

According to Viterra, Western Canada's estimated total seeded acreage is around 50-52 million acres (20-21 million hectares) compared to the five-year average of 60 million acres (24 million hectares).

 

The 15% estimated decline in seeded acreage is a result of weather-related planting constraints due to unprecedented rainfall in May and June. About two million seeded acres have been damaged due to excess rains and another eight million acres went unseeded.

 

Western Canadian agri-product sales average approximately US$4.6 billion annually. With the loss of acreage this year, the company expects industry sales to decline by 15-17% in fiscal 2010, with the largest declines in fertiliser and chemical sales.

 

The impact to Viterra in its third quarter will be reflective of the company's market share, which is currently at 32%.

 

"However, should the Western grainbelt have good harvest conditions this fall, Wonnacott expects farmers to increase their application of nutrients, given the erosion of nitrogen resulting from excess moisture. In addition, increased weed growth will require the application of herbicides in the fall to prepare the land for the following growing season," Wonnacott said.

 

Western Canadian production of the six major grains averages 49-50 million tonnes annually. Viterra currently estimates total western Canadian production at 42-44 million tonnes, with industry receipts estimated at 28 million tonnes.

 

While the reduced acreage will affect the amount of grain produced, the company says the estimated six million tonnes of on-farm carry-over stocks, coupled with yields on acreage unaffected by the weather, could somewhat offset the impact of unseeded acreage.

 

"The growing season has certainly been challenging and it is difficult to predict with certainty how much grain production will ultimately be available," Bob Miller, senior vice-president of North American Grain for Viterra.

 

But Miller said Viterra's recent US$1.4 billion acquisition of ABB Grain of Australia should offset some of the negative impact of the reduced crop production in Western Canada.

 

"Our South Australia business, on the other hand, is experiencing good seeding conditions and sufficient moisture, a positive signal for crop development from that region. Our strategy to diversify into the southern hemisphere mitigates our risk, and could pay off this year, as it will lessen the impact, to some extent, of the effects of weather conditions in North America," said Miller.

 

The company will provide an update on September 8, when it issues its third quarter results for the three months and nine months ending July 31.