Wet Weather Swamps Farm Suppliers
August 01 2019 - 1:33PM
Dow Jones News
By Jacob Bunge
Record-breaking rains continue to vex the agricultural industry,
adding hundreds of millions of dollars in costs for grain traders
and crop-seed suppliers.
Millions of corn and soybean acres were left unplanted after
continuous springtime storms, leading to product returns and
swelling inventories for seed and pesticide makers including
Corteva Inc. and Bayer AG. Agricultural shippers and processors
Archer Daniels Midland Co., Bunge Ltd. and Ingredion Inc. have
contended with overflowing rivers that shut plants and raised grain
prices across the Midwest.
"It's difficult to overstate how challenging this year has
been," James Collins, chief executive of Corteva, said Thursday on
a conference call. Corteva said the bad weather drove quarterly
profit in its seed business down 50%, as seed sales fell by $180
million and pesticide sales dropped $161 million.
Shares in Corteva, the former agriculture unit of DowDuPont,
jumped 10% as its results outpaced analysts' expectations. Shares
of ADM, Ingredion, Bunge and Bayer also climbed.
The U.S. agricultural sector for the past year has struggled to
navigate trade disputes pitting the U.S. against some of the
biggest food importers, including China and Mexico. Tariffs on U.S.
farm goods forced exporters to seek new markets, and cut into
prices for farmers, leaving them with less to spend on seeds and
chemicals.
Then came the spring rains, capping the wettest 12-month period
on record for the continental U.S. Repeated storms left fields too
wet to plant, forcing farmers to decide among gambling on
late-planted crops, switching to less-profitable alternatives or
filing insurance claims.
Corteva said costs in its latest quarter climbed as farmers
replanted crops after rain swamped their fields, an expense often
covered by seed companies, while farmers switched seed orders to
faster-maturing corn and lower-priced soybeans after storms forced
later planting. With fewer acres planted, rival seed makers cut
prices and Corteva followed suit, executives said. Corteva said it
now expects 2019 profit to be $250 million to $300 million lower
than its previous forecast.
"The events that transpired in North America this year are
without precedent," Mr. Collins said.
Bayer, the world's biggest seed-and-pesticide supplier following
its 2018 acquisition of Monsanto, said Tuesday that the wet U.S.
spring could put its 2019 profit goal out of reach. The German
drug-and-chemical conglomerate said the rain caused a $337 million
decline in its agricultural sales, after some U.S. farmers gave up
on planting corn and skipped spraying herbicides, which
particularly hit sales of its flagship Roundup weedkiller.
Lawn and garden supplier Scotts Miracle-Gro Co. this week agreed
to sell Bayer some of the Roundup-branded retail products owned by
Scotts. The $112 million deal lifted Scotts shares nearly 9%
Wednesday after the deal was announced.
Some weather-challenged farmers are cutting costs by switching
to generic pesticides, further pressuring prices for Corteva, Bayer
and Syngenta AG.
"We're going for the cheapest ones we can," said Ohio farmer Ron
Snyder.
ADM, one of the world's biggest grain processors and exporters,
said the spring deluge added $65 million in costs to its most
recent quarter. High river waters slowed ADM's barges, added costs
for its grain-shipping business and made U.S. corn more expensive
for foreign buyers.
"We couldn't deliver," ADM CEO Juan Luciano said Thursday on a
conference call. U.S. corn shipments inspected for export were down
43% in the second quarter, according to JPMorgan analysts.
Flooding forced ADM to shut plants in Nebraska and Illinois,
costing tens of millions of dollars. Similar challenges cost
smaller rival Bunge about $13 million in the quarter, executives
said on Wednesday.
In hard-hit stretches of the Midwest where weeds now reign over
farm fields, grain companies like ADM, Bunge and Cargill Inc. have
offered lofty prices for grain to secure supply ahead of an
uncertain harvest.
Mr. Luciano said tighter supplies already are boosting costs for
major grain buyers like food processors and livestock
producers.
Ingredion, which produces high-fructose corn syrup, starches and
other staples, said Thursday that rising corn costs, partly driven
by weather problems, cut its North American profit by $29 million
so far this year. The likelihood of higher corn prices ahead led
the company to cut its 2019 profit projection.
Chief Executive Jim Zallie said Ingredion was working to pass
rising grain costs on to its customers.
Write to Jacob Bunge at jacob.bunge@wsj.com
(END) Dow Jones Newswires
August 01, 2019 13:18 ET (17:18 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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