DowDuPont to take $4.6 billion charge in agriculture unit

The company says low commodity prices and larger inventories could cause farmers to buy less advanced seed

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Reuters – DowDuPont Inc. said Oct. 18 it would write down the value of its agriculture business by $4.6 billion when it reports third-quarter results, as global seed makers face shifts in demand linked to the U.S.-China trade war.

The charge sent DowDuPont shares down as much as six per cent in extended trading.

Why it matters: An escalating trade war between the United States and China is increasing uncertainty for players in the farm sector.

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The company, in a regulatory filing, also said its agriculture unit would see reduced cash flow, hit by weak sales and margin growth in North America and Latin American markets.

In a later statement, DowDuPont said the charge was non-cash and reflected the effect of previously reported market conditions. It said the charge would not affect full-year 2018 financial guidance for flat net sales in the agriculture business.

In response to U.S. tariffs on Chinese goods, Beijing this year imposed a 25 per cent tariff on U.S. soybeans, the most valuable American farm export to China.

China, the world’s largest importer of soybeans, has scaled back purchases of U.S. soybeans as a result, and is buying from Brazil instead. The shift has prompted Brazilian farmers to plant more soybeans, instead of corn. Some U.S. farmers may make the opposite choice in the spring.

The changes can affect DowDuPont because about two-thirds of its net seed sales are corn and 20 per cent are soybeans.

“The lower growth expectation is driven by reduced planted area, an expected unfavourable shift to soybeans from corn in Latin America, and delays in expected product registrations,” DowDuPont said in a filing.

DowDuPont also said low commodity prices and bigger-than-expected inventories would likely cause farmers to buy less-advanced seed technologies.

The trade dispute has hurt U.S. crop prices, already under pressure from years of large harvests. This autumn, farmers are putting soy harvests into storage, rather than sell them to processors and merchants.

DowDuPont’s cash flow projection for the agriculture unit reflects the anticipated impact of events of 2018 and will result in a reduction in long-term forecasts of sales and profitability, the company said, without providing numbers.

Analysts on average were expecting the company to report a profit of US$1.6 billion, or 65 cents per share, for the three months ended September, according to Refinitiv data. Bayer Crop Science has said the trade dispute is making it difficult to predict 2019 earnings for its agriculture unit.

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