Australia has experienced one of the driest autumns since records began, more than 100 years ago, leading to poor crop growth.
It’s not unusual to experience dry conditions in early autumn, with a normal winter crop possible if a rain break arrives by mid-June.
But, continued dry conditions in July are contributing to one of the driest seasons on record for many crop regions.
Nufarm is concerned that the Australian crop protection market is down substantially as a result.
The extended dry weather conditions have impacted ANZ business, with the 2018 financial year EBIT contribution from ANZ now anticipated to be between $5million to $10m (LY$51.6m).
These seasonal conditions have also impacted the mix of products sold, with growers buying lower margin functional products over higher margin differentiated products.
The limited demand for crop protection products across Australia has led to increased competition and high inventory levels – resulting in significant margin pressure.
By the 20th of July, following feedback from Nufarm teams, it was determined that the market had reached a turning point.
It is now considered unlikely that a viable crop season will occur in many parts of the country and the expected demand for post emergent products will not eventuate.
Given poor demand in the 2018 financial year, there will be an overhand of inventory. Grower demand will depend on a return to normal summer conditions in the 2019 financial year, but the Australian Bureau of Meteorology is forecasting a dry spring.
Anticipated low levels of demand, coupled with the current over-supply, is expected to constrain sales and margin into 2019.
Despite the drought conditions, Nufarm remains confident it has retained market share in Australia, in line with the long term strategic objective.
Nufarm expects Net Working Capital for the group, at the 31st of July, to be $200m-$300m higher than last year.
This reflects the high inventories in the Australian business due to the difficult seasonal conditions and the higher receivables in the Northern Hemisphere countries resulting from the delayed seasons in those markets.