Monsanto row hits Nufarm's profits

Herbicide vendor Nufarm provided mixed news yesterday, telling investors it would beat forecasts for its underlying net profit for the year to July 31, but warning of a further writedown knocking $28 million off the published net profit number.

The writedown is part of an ongoing battle over a disputed receivable allegedly owed by US agricultural giant Monsanto, initially for $58.9m.

On July 13, the company gave guidance of between $88m and $94m for the year just ended. However, yesterday's announcement makes it clear that the headline earnings number -- before one-offs such as the writedown -- will exceed $94m.

Even if that result is knocked down by the $28m writedown, the $66m profit would still beat the previous year's 2010 headline profit of $58.6m.

On June 15, Nufarm announced the Monsanto receivable would be written down to a value of $25m in the company's accounts and that the settlement would recover $13.5m against its written-down value, "resulting in a further writedown at year's end".

In 2002, Monsanto licensed Nufarm to sell Roundup, a Monsanto-trademarked glyphosate product, in Australia.

The price of glyphosate soared in early 2008, partly because Chinese glyphosate factories in Beijing were ordered to close for the duration of the Olympics.

Then, in mid-year, prices dropped sharply and Monsanto announced in September 2008 that it was cutting glyphosate prices by up to 50 per cent.

As a result, the product price -- which had jumped from about $US4 a kilogram in mid-2007 to between $US13 and $US14 in mid-2008 -- then sank back to $US4 ($3.88), where it is now.

Nufarm was caught with a large quantity of stockpiled glyphosate after July 2008.

The dispute with Monsanto is understood to date from a profit and marketing cost-sharing agreement the two companies signed in 2002.

In simple terms, Monsanto is understood to view loss sharing in a different light from profit sharing. Yesterday, Nufarm chief executive Doug Rathbone said a settlement proposal had emerged from recent discussions that "on balance" would be acceptable to the Nufarm board.

Mr Rathbone said compromising over the receivable was justified by a number of factors, not least the management time involved in further hearings, the litigation risk and "the ongoing commercial relationship between the parties".