02/08/2012 08:26 EST | Updated 04/09/2012 05:12 EDT

Agrium sees pick up in fertilizer demand, reports higher fourth-quarter profits

CALGARY - Global demand for the fertilizers Agrium Inc. produces was slow during the fourth quarter of 2011, but the major agriculture company sees business beginning to pick up as crop prices rise.

"Looking ahead to 2012, the underlying fundamentals for the agricultural sector and crop input market continue to be very positive," chief executive officer Mike Wilson said on a conference call Wednesday to discuss Agrium's latest financial results.

"Despite concerns over the conditions of the global economy, the fundamental long-term drivers of our business remain strong."

Calgary-based Agrium (TSX:AGU) posted strong results during the last three months of 2011, with a 43 per cent increase in net earnings and a 32 per cent rise in sales.

"This was no small feat in a quarter where heightened global economic uncertainty impacted both crop nutrient prices and buyers' interest in purchasing any product that wasn't going to be applied to the ground almost immediately," said Wilson.

Investors reacted positively to Agrium's results, pushing its shares up nearly two per cent to $82.50 in afternoon trading on the Toronto Stock Exchange.

Agrium produces the three main types of fertilizer: nitrogen, phosphate and potash. It also sells farm products at retail outlets across North America, with a growing presence in South America and Australia.

During the fourth quarter, major crop prices dropped significantly, leading Agrium's customers — farmers — to put off buying fertilizer. However, Agrium said the future prospects for the agriculture sector are positive, with the price of corn now at historic highs.

Demand for nitrogen was "relatively quiet" in late 2011, but is now rebounding somewhat with renewed purchases in Pakistan and other markets and pent up demand emerging in Europe and North America, Wilson said.

Phosphate demand was also slow in late 2011, but prices are stabilizing,Agrium said. India asked suppliers to delay shipments as its currency dropped and its ports became congested. North American farmers have been reluctant to refill their inventories, but they'll need a lot of the fertilizer before planting their 2012 crop.

Global potash import demand was "particularly slow" in late 2011 and early 2012. Many potash producers have cut their production amid the slower demand, but that should pick up as crop prices strengthen, Agrium said.

"There was clearly a great deal of caution exhibited by many global buyers for all three crop nutrients in the fourth quarter, and some of that still lingers today, particularly for potash," said Wilson.

"However, recent potash production curtailments should help bring supply and demand into better balance. Additionally, fertilizer is extremely affordable relative to the strong grain prices and cash margins, and we expect global demand for all three nutrients to increase in 2012."

The two other major North American potash producers — Potash Corp. of Saskatchewan (TSX:POT) and Mosaic Co. (NYSE:MOS) — have cut their production, but Agrium hasn't so far at its facility in Vanscoy, Sask.

"We have a saying that we make what we sell, we don't sell what we make. And in the past we have shut in production if we don't have the sales," said Wilson.

Ron Wilkinson, who heads up Agrium's wholesale division, said its potash inventories are only at about 60 per cent, much lower than the rest of the industry.

"We just need to keep our eye looking ahead on both domestic and international sales and that will dictate the potential need for a curtailment or shut down," said Wilkinson.

Late last year, Agrium approved a one-million tonne expansion to its Vanscoy mine that will increase capacity by 50 per cent at a cost of $1.5 billion. Construction is underway and is set to wrap up in 2014.

Currently Vanscoy, Agrium's only potash plant, accounts for three per cent of world potash capacity, making the company the 10th largest producer.

Agrium, which reports in U.S. dollars, said net earnings rose to US$193 million, or $1.20 per share, up from $135 million, or 86 cents per share, in the same period of 2010.

Agrium's sales were up 32 per cent to $3.18 billion.

The results included an impairment charge of $61 million, or 30 cents per share, related to its investment in Hanfeng Evergreen Inc. (TSX:HF), the largest producer of low and controlled release fertilizer in China and Indonesia. Hanfeng reported a loss in its most recent quarter as production cuts for planned maintenance sharply reduced revenue.

Excluding that charge, net earnings from continuing operations would have been $374 million, or $2.34 per share.

The adjusted earnings beat analysts expectations $2.08 per share in earnings and revenues of $2.9 billion.

Full year net earnings were $1.4 billion or $8.68 per share, up from $713 million or $4.51 per share in 2010.

Losses recorded from discontinued operations of $134 million during the quarter included an inventory writeoff of $85 million related to an insurance claim regarding "misappropriated" soybean inventory.