July 22, 2018 / 11:31 PM / 2 months ago

UPDATE 3-Australia's dry weather wilts Nufarm earnings, raises 2018 crop fears

* Nufarm cuts profit guidance from its Australian division

* Says viable crop season unlikely in many parts of the country

* Warning a bellwether for rural sector - analyst

* Shares fall 10 pct to hit two-year low (Adds quotes from farmer, analysts)

By Colin Packham

SYDNEY, July 23 (Reuters) - Agricultural chemical company Nufarm Ltd cut guidance for its fiscal 2018 underlying earnings on Monday after dry weather in Australia reduced demand for crop protection products, sending its shares down as much as 10 percent.

Unseasonably dry weather across Australia, a large agricultural exporter, has hurt many of the country’s rural firms, but Nufarm is the first to acknowledge production of this season’s crops such as wheat could fall drastically.

Despite the lack of rain, the company said it had anticipated a rise in demand for its products once crops emerged after many Australian farmers were forced to sow into dry soils.

But it had been forced to re-evaluate.

“Following feedback from Nufarm teams in the regions ... it was determined that the market had reached a turning point, and it was now considered unlikely that a viable crop season would occur in many parts of the country,” Nufarm said in a statement.

It forecast underlying earnings before interest and tax (EBIT) for the year ending July 31 of A$255 million to A$270 million ($190 million to $201 million), down from $302.3 million a year ago.

Nufarm, which said its Australian business was suffering from “one of the driest autumns since records began more than 100 years ago”, had already downgraded its guidance in May due to challenging weather conditions across Australia, Europe and North America.

NO SIGNS OF CHANGE

Nufarm’s profit downgrade is a bellwether for Australia’s wider rural sector, analysts said, as the dry weather shows little sign of abating.

Australia’s chief commodity forecaster last month trimmed its outlook for wheat production by 8 percent to 21.9 million tonnes, and cautioned its estimate could fall further.

Private forecasters have also begun to downgrade their estimates.

“If it remains dry over the next couple of months as forecasts predict, it could fall as low of 13 million tonnes,” said James Maxwell, commodity analyst at Profarmer Australia.

That would be the lowest crop since 2008. Australia typically exports around 18 million tonnes of wheat a year, mainly to Asia.

While crop prospects on the north of Australia’s east coast are bleak, farmers said their season could still be salvaged with an immediate break in the weather.

“It is going to have to get very wet, very quickly to turn the crop around,” said Dan Cooper, a farmer in Caragabal, 400 km (250 miles) west of Sydney.

“It is not going to be a big year but if we can get an inch of rain, we can a reasonable crop.”

EBIT DOWNGRADE

Nufarm forecast EBIT from its Australia and New Zealand business, its second-largest business segment, of A$5 million to A$10 million, down from A$51.6 million a year ago.

Its shares fell as much as 10 percent to hit a two-year low after the announcement, while shares in grain handler GrainCorp slipped as much as 4 percent.

Nufarm added that it expects low levels of anticipated demand and a current supply surplus to constrain sales and margin into fiscal-year 2019.

It was also reviewing the impairment implications for the Australian business.

$1 = 1.3446 Australian dollars Reporting by Colin Packham in Sydney, additional reporting by Aditya Soni in Bengaluru; editing by Richard Pullin

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