Updated estimates from Canada’s largest grain company on the number of total seeded acres across the Prairies don’t bode well for the ag retail sector as a whole, Viterra warns.
Ahead of Statistics Canada’s next batch of seeded acreage estimates in August, the Regina-based grain firm on Thursday announced a new estimate of total seeded acres in Western Canada, between 50 million and 52 million, well below the five-year average of 60 million.
“The estimated decline in acreage is a result of weather-related planting constraints due to unprecedented rainfall in May and June, the primary seeding period for Prairie growers,” Viterra said in a release.
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“Approximately eight million acres went unseeded, and additionally, about two million seeded acres were lost to excess rains.”
Farmers in Western Canada typically invest between $70 and $110 per acre, depending on the types of crops grown and the areas in which they’re seeded, the company said, and annual agri-product sales in the West average about $4.6 billion.
With the lost acres in mind, Viterra said it expects industry sales to drop by 15 to 17 per cent in fiscal 2010, with the largest declines in fertilizer and chemical sales.
And with Viterra’s market share of about 32 per cent of that industry, the company predicts every one per cent change in retail sales will impact its own earnings (EBITDA) by about $2 million to $3 million.
“Weather conditions this year have been extremely difficult for our farm customers and we have done what we can to support them,” Doug Wonnacott, the company’s senior vice-president for agri-products, said in the release.
“Significant weed growth”
On the company’s part, it expects the impact from the lost acres to be felt in the third fiscal quarter of 2010, while “full year results will be dependent upon fall field activity,” he said.
“Should we have good harvest conditions and farmers are able to participate in post-harvest work, we expect them to maximize their application of nutrients given the significant erosion of nitrogen resulting from excess moisture.”
Also, he said, “we expect significant weed growth which will require the application of herbicides in the fall to prepare the land for the following growing season.”
But the impact on grain production is more difficult to predict come fiscal 2011, Viterra said. Given the West’s production, on average, of the six major grains at 49 to 50 million metric tonnes — and Viterra’s estimate of total Prairie production at 42 to 44 million tonnes with industry receipts around 28 million tonnes — the company estimated that for every five per cent change in Prairie production volumes, EBITDA is impacted by $8 to $10 million.
“Our estimate is based on what we know today and assumes positive harvest conditions,” Bob Miller, senior vice-president for North American grain, said in the company’s release.
“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.”
Viterra’s strategy to diversify into the southern hemisphere mitigates our risk, Miller said, “and could pay off this year, as it will lessen the impact, to some extent, of the effects of weather conditions in North America.”
