Trade flows remain elevated
The following is an analysis of recent data points we monitor as indicators of activity.
Australia: YTD imports of ag-chem into Australia (Jun’22) have softened -5% YOY in volume terms, with Jun’22 volumes up +1% YOY. Soil moisture profiles and three month rainfall outlooks remain favourable for both winter and summer crops.
USA: YTD imports of ag-chem into USA (Jun’22) have grown +22% YOY in volume terms, with Jun’22 volumes up +39% YOY. US Crop condition reports, show corn behind a year ago, soy in line with a year ago and the spring wheat harvest tracking behind a year ago.
Europe: YTD imports of ag-chem into the EU+UK (May’22) are down -1% YOY in volume terms, with volumes in core NUF markets are down -5% YOY. Dry conditions in Spain, France, Italy and Germany are impacting summer crop yields, while winter yields have recently been revised up.
Active ingredient pricing: Average active ingredient prices ex-China softened in the month, down on average -2% MOM but still up +6% YOY. Glyphosate tech pricing demonstrated similar trends in the month, down -2% MOM, but is up +18% YOY.
Peer reporting (updated for Adama): 3Q revenue growth trends were strong in Europe (+17% YOY), North America (+16% YOY) and APAC (+13% YOY) reported. In aggregate gross margin compression of 50bp was reported, with strong pricing gains (+7-20% YOY depending on manufacturer) being reported.
Investment view: Buy rating unchanged
There is no change to our Buy rating, $6.75ps target price or earnings forecasts in this note. Trade flows of ag-chem into major NUF markets have remained at historically high levels. While pricing of active ingredients has contracted from peaks it remains elevated YOY and this has on face value been more than mitigated by rising selling prices (as reported by the peer group). From a FY23-25e perspective improving fishmeal and fishoil premiums (to oilseeds) is an encouraging development for crush returns from the omega-3 product pipeline.
