The collapse of sulphur and ammonia prices led buyers to wait on the sidelines in hopes of bigger bargains. By the end of the quarter, some producers and distributors were selling off nitrogen and phosphate inventories below cash cost mainly due to liquidity concerns.
However, fire sale prices did not trigger significant new demand... A large percentage of production in all three nutrients was shut down by the end of the quarter.
In potash, the total announced production curtailments for the first quarter add up to as much as 5.5 to 6 million tons, over a third of the world's current production capability. At Potash Corp., we announced our intention to shut down more than 2 million tons of production this quarter.
In phosphate, an estimated 50% of the world's solid fertilizer production was being curtailed at the end of 2008.
In nitrogen, unprecedented levels of agricultural and industrial production were shut down by year end.
Fertilizers will pick up:
In the key growing regions of China and India, food remains a top priority, with governments working diligently to further incentivize farmers to raise food production... We expect to see a return to increased planting and proper fertilization in the near future.
Early in 2008, food shortages were a top-of-mind issue around the world and they threaten to become a more pressing issue very quickly.
Farmers around the world, with the exception of Brazil, are in a good financial position. These are the end users of our products and according to the U.S. Department of Agriculture, American farmers generated a record $90 billion in net income last year and their debt-to-equity ratio dropped to 10%.
There are signs already:
Nitrogen has hit the bottom. I don't think there's any question about that. Phosphate we believe is close to the bottom, if not hitting it already. And potash, as you know, has been able to weather the storm.
We have seen some activity in the nitrogen area here in the last few weeks... We're hoping here in February and March in the southern half of the U.S., when that season typically starts, for things to start moving, and I would assume no later than March product start moving here in the Midwest.
We right now believe 2010 is going to be just a terrific year for the fertilizer business in general… Second half of 2009, and 2010 is going to be a bang up year.
Thursday, January 29, 2009
Potash is Bullish On Brazil
Recently we highlighted the difficulties agro-chemical companies were facing in Brazil. We wondered here whether some of these other companies/industries should be counting so heavily on growth in Brazil.
Potash Corp. (POT) says things were dramatically bad for Brazil late in 2008, but their outlook is positive. From Potash Corp.'s (POT) Q408 conference call:
There's no country more impacted by the financial crisis than Brazil... What the financial crisis did is the retail players in the Brazilian market stopped their credit lending policies... [At] one time about 25% of all the credit in Brazil came from the local Brazilian industry.
They stopped doing that last year once this credit crisis took hold, and I think very smartly. I think that's the bank's job and it's the government's job and the industry shouldn't be doing that, so I take my hat off to them for making that change. But unfortunately, the government wasn't ready and they didn't position themselves to step into the gap and there was definitely credit shortage in Brazil. That impacted planting, it impacted fertilizer applications, and so Brazil, as I said in my formal remarks, Brazil is going to be down 3%, this USDA forecast, for beans and 9% for corn.
And, you know, when you see $10 soybeans today and the real of 2.32 now to the dollar the real has weakened the motivation for Brazilian farmers because of profitability has increased dramatically since the fall. They will respond to that and, in addition, Brazil has the poorest soils in the world, very potassium deficient soils, and we're going to see major destocking here during the first few months of the year. We had Brazil actually penciled in not until a second half start, but it looks like now Brazil's going to get going here in the April - May period because they just won't be able to wait. So we see a very strong second half and then a terrific 2010 shaping up for Brazil.
So overall about flat, potash in Brazil, 2009 versus 2008.
Potash Corp. (POT) says things were dramatically bad for Brazil late in 2008, but their outlook is positive. From Potash Corp.'s (POT) Q408 conference call:
There's no country more impacted by the financial crisis than Brazil... What the financial crisis did is the retail players in the Brazilian market stopped their credit lending policies... [At] one time about 25% of all the credit in Brazil came from the local Brazilian industry.
They stopped doing that last year once this credit crisis took hold, and I think very smartly. I think that's the bank's job and it's the government's job and the industry shouldn't be doing that, so I take my hat off to them for making that change. But unfortunately, the government wasn't ready and they didn't position themselves to step into the gap and there was definitely credit shortage in Brazil. That impacted planting, it impacted fertilizer applications, and so Brazil, as I said in my formal remarks, Brazil is going to be down 3%, this USDA forecast, for beans and 9% for corn.
And, you know, when you see $10 soybeans today and the real of 2.32 now to the dollar the real has weakened the motivation for Brazilian farmers because of profitability has increased dramatically since the fall. They will respond to that and, in addition, Brazil has the poorest soils in the world, very potassium deficient soils, and we're going to see major destocking here during the first few months of the year. We had Brazil actually penciled in not until a second half start, but it looks like now Brazil's going to get going here in the April - May period because they just won't be able to wait. So we see a very strong second half and then a terrific 2010 shaping up for Brazil.
So overall about flat, potash in Brazil, 2009 versus 2008.
Caterpillar on Mining and Commodities
Global construction equipment maker Caterpillar (CAT) offers insight into commodity prices and the outlook for mining. Needless to say, a sharply different tune from last quarter. Those and other key points from Caterpillar Inc.’s Q408 conference call:
Declining commodity prices:
Since the end of the third quarter, aluminum prices were up 45%; copper, which is a bellwether commodity for us, is down about 50%; oil was off about 60%; and natural gas prices were down about a third.
We're now forecasting further declines in commodity prices for 2009 and for most commodities at prices below where they are today, and we’ve cut our growth expectations for economies around the world.
Proactive management:
The company noted deteriorating commodity prices. So it then asked clients around the world to consider their orders and cancel if they don’t want them... Dealers... made substantial order cancellations.
We probably could shift a billion plus in incremental product in 2008 that we’ve just done what we have historically. So, we stepped up, we said no, we don’t want to ship you product and have the wrong product in your dealership, and have to discount it after the fact in order to move it.
Global recession:
Dealer inventories are going to go down literally around the world…I think in North America, we took out dealer inventory quite a bit in 2007, so I think there was a bit of a head start there, but it will be pretty much across the board, not at the same rate, but Europe, Africa, Middle East probably have a little more than, on average, than the rest.
Mining:
So far anyway, areas like gold and gold mining and coal mining have held up, lets say better then steel, copper and certainly the oil sands. And I think as you look forward to the rest of the year, I think we would be a little bit more bullish on coal for example than we would, metals, minerals and quarrying, for example.
Although I think coal and gold mining are a little bit better than the rest, mining is in negative as well. That’s going down compared to the record year of mining truck shipments we'll have this year, but we had a very substantial order backlog on the order of three years... Some of those are likely going to be cancelled.
Outlook:
The mining industry was never able to get all of the equipment they wanted in the boom and the average age of the truck working in a mine today is over 10 years old, which is older than normal life cycles, and so there is a replacement cycle that will likely come as better availability comes about.
The world economy still is short of capacity for a number of commodities, in particularly energy-related commodities that are needed to accommodate growth.
I expect prices in the mining industry will hold reasonably well… It is probably going to be an over correction in commodity prices, but the threshold level for investment was well below the peaks they reached last year. We aren’t looking for those peaks to come back in the foreseeable future, but we are looking for commodity prices to stabilize and rebound a little bit off the floors they will likely hit in the first half of '09.
Declining commodity prices:
Since the end of the third quarter, aluminum prices were up 45%; copper, which is a bellwether commodity for us, is down about 50%; oil was off about 60%; and natural gas prices were down about a third.
We're now forecasting further declines in commodity prices for 2009 and for most commodities at prices below where they are today, and we’ve cut our growth expectations for economies around the world.
Proactive management:
The company noted deteriorating commodity prices. So it then asked clients around the world to consider their orders and cancel if they don’t want them... Dealers... made substantial order cancellations.
We probably could shift a billion plus in incremental product in 2008 that we’ve just done what we have historically. So, we stepped up, we said no, we don’t want to ship you product and have the wrong product in your dealership, and have to discount it after the fact in order to move it.
Global recession:
Dealer inventories are going to go down literally around the world…I think in North America, we took out dealer inventory quite a bit in 2007, so I think there was a bit of a head start there, but it will be pretty much across the board, not at the same rate, but Europe, Africa, Middle East probably have a little more than, on average, than the rest.
Mining:
So far anyway, areas like gold and gold mining and coal mining have held up, lets say better then steel, copper and certainly the oil sands. And I think as you look forward to the rest of the year, I think we would be a little bit more bullish on coal for example than we would, metals, minerals and quarrying, for example.
Although I think coal and gold mining are a little bit better than the rest, mining is in negative as well. That’s going down compared to the record year of mining truck shipments we'll have this year, but we had a very substantial order backlog on the order of three years... Some of those are likely going to be cancelled.
Outlook:
The mining industry was never able to get all of the equipment they wanted in the boom and the average age of the truck working in a mine today is over 10 years old, which is older than normal life cycles, and so there is a replacement cycle that will likely come as better availability comes about.
The world economy still is short of capacity for a number of commodities, in particularly energy-related commodities that are needed to accommodate growth.
I expect prices in the mining industry will hold reasonably well… It is probably going to be an over correction in commodity prices, but the threshold level for investment was well below the peaks they reached last year. We aren’t looking for those peaks to come back in the foreseeable future, but we are looking for commodity prices to stabilize and rebound a little bit off the floors they will likely hit in the first half of '09.
CF-Terra Deal Far from Done
Recent information is indicating that the acquisition of Terra (NYSE: TRA - News) by CF Industries (NYSE: CF - News) is just a proposal that is far from complete. CF has proposed the transaction, and Terra has net yet responded.
CF has not bought Terra yet and the potential ownership of the new company being 53% with CF Industries shareholders and 47% with Terra shareholders may be premature. This proposed acquisition may have many more unusual developments in the near future.
CF has not bought Terra yet and the potential ownership of the new company being 53% with CF Industries shareholders and 47% with Terra shareholders may be premature. This proposed acquisition may have many more unusual developments in the near future.
Thursday, January 22, 2009
Two Reasons CF Looks Headed for Big Profits
A Rare Bump for a Buyer…
What do a Wall Street analyst and a corn farmer have in common? They both know that fertilizer prices have fallen off a cliff.
Last year, a big increase in the demand for nitrogen-based fertilizers led the price of fertilizer and the value of the companies that make it to triple-digit gains.
But when the commodities market cooled, fertilizers were no exception. Since then, the prices of fertilizer – and the companies that produce them – have dropped straight back to Earth.
That’s why CF Industries’ (NYSE: CF) recent announcement made such big news. Amid collapsing share prices and notoriously tight credit for mergers and acquisitions, CF Industries announced Friday an offer to buy out smaller-player Terra Industries (NYSE: TRA).
Terra Industries popped 27% on the news, and CF Industries rose 2.73%. Normally, a buyer taking on a pile of debt to finance a deal that may or may not work out will see a little bit of a decline.
But two things are at play here:
1) The market thinks this is a good fit.
CF Industries expects to save $100 million over two years by combining forces. That’s nothing to sneeze at for a company that would have combined revenues just over $6 billion. This puts CF in position to maintain a much more competitive position over bigger players like Potash Corp. (NYSE: POT) and Terra Nitrogen (NYSE: TNH).
2) The future for fertilizer will be like the past.
Unfortunately, food production is going to be a major global problem for the next few decades. It will quite possibly be the biggest problem our species will ever face. And one of the only ways currently available to increase production is to load up on powerful nitrogen fertilizers. And since supply is finite, long-term prices have only one way to go.
Fortunately for CF Industries and other fertilizer companies, this spells profits. And for CF, the purchase of Terra Industries has likely improved their position to compete in that niche
What do a Wall Street analyst and a corn farmer have in common? They both know that fertilizer prices have fallen off a cliff.
Last year, a big increase in the demand for nitrogen-based fertilizers led the price of fertilizer and the value of the companies that make it to triple-digit gains.
But when the commodities market cooled, fertilizers were no exception. Since then, the prices of fertilizer – and the companies that produce them – have dropped straight back to Earth.
That’s why CF Industries’ (NYSE: CF) recent announcement made such big news. Amid collapsing share prices and notoriously tight credit for mergers and acquisitions, CF Industries announced Friday an offer to buy out smaller-player Terra Industries (NYSE: TRA).
Terra Industries popped 27% on the news, and CF Industries rose 2.73%. Normally, a buyer taking on a pile of debt to finance a deal that may or may not work out will see a little bit of a decline.
But two things are at play here:
1) The market thinks this is a good fit.
CF Industries expects to save $100 million over two years by combining forces. That’s nothing to sneeze at for a company that would have combined revenues just over $6 billion. This puts CF in position to maintain a much more competitive position over bigger players like Potash Corp. (NYSE: POT) and Terra Nitrogen (NYSE: TNH).
2) The future for fertilizer will be like the past.
Unfortunately, food production is going to be a major global problem for the next few decades. It will quite possibly be the biggest problem our species will ever face. And one of the only ways currently available to increase production is to load up on powerful nitrogen fertilizers. And since supply is finite, long-term prices have only one way to go.
Fortunately for CF Industries and other fertilizer companies, this spells profits. And for CF, the purchase of Terra Industries has likely improved their position to compete in that niche
Monday, January 19, 2009
At Least Five Agricultural Stocks with Upside
How does one navigate these incredibly difficult markets? Is it possible for an investor to have success even if he does not have the ability to sit by the computer all day long placing trades? The initial crumbling of the financials made it easy for Bears, but as many of these companies have disintegrated, it has become a very iffy situation placing bets to the downside, as any new news could cause one of these banks to take off or the market to go up 500 points. On the other side, it is difficult to invest in stocks as it is difficult to know which companies will go under. Circuit City just announced they will be closing the remainder of their stores, another company to be chucked to the wayside as they were unable to obtain financing to either sell the company or keep it going until the consumer recovers.
The first and most important decision in making an investment is with regards to sectors. Before looking at any individual stocks, first find a sector that seems oversold. If a sector looks good, any stock within that group will benefit from the good news of the other stocks. These can be checked by following any of the ETFs that are sector based.
Currently, I am not very excited about anything consumer oriented. The reason for this is sentiment, as it is emotion based and can be difficult to gauge. Even the best companies in the world are finding it difficult to navigate the current environment, as disposable income has all but disappeared. A good example is Apple (AAPL), which has held up well, but has come under incredible pressure. The stock is selling for around $80 a share and that is with $30 per share cash on the balance sheet.
The banks are another difficult area to figure out. Although the US government is doing everything they can to nationalize the banks without nationalizing them, many of these will be left as only preferred stock and investors could lose their entire investment.
Those who have read my writings know that I am a pundit of agriculture. First and foremost, this sector is a need, not a want. We need food, and with corn, soybeans and wheat below inventory averages, these stockpiles will need to be built back up. Many of these stocks took it on the chin last week as the USDA report came out with abysmal numbers with respect to commodity prices. Many people thought we were going to see $8 corn, but now it looks like it will be closer to $4.
When dissecting these numbers, it seems as though this could be a buying opportunity. The reason is yield. Since we are running out of fertile land, yield is the only way to increase food production. Many of these once boring companies have become technology based.
The current environment in the United States adds bullishness to this area. After $4 a gallon gas caused the crushing of the US dollar not too long ago, many Americans are screaming for alternative uses with respect to energy. There are current technologies that will work but only one is cost effective. Liquefied and compressed natural gas could be a huge success until we are able to use other technologies such as hydrogen (although this seems to be a long way off). Since the United States feeds the world, it behooves them to use food to fill our cars. Not only is it renewable, but also pushes up the price of agricultural commodities, helping with our massive deficit. It also decreases the amount of pollution, another big topic on the Hill.
The election of a Democratic President also bodes well. Not only does this give the Democrats the Presidency, it also secures legislation as there will be no veto. Democrats have long been proponents of farmers and will continue to be. Supporting crop prices and continued subsidies will help this sector going forward. For these and many more reasons, I have placed together a list of companies that I believe have the best chance of making some serious cash for their investors.
1. Monsanto (MON)
This was a very difficult decision to make with respect to the top spot, but it was made because of seeds. The use of fertilizer can be put off, but plants cannot grow without seeds. Monsanto has watched their company grow at supersonic speed due to Round-Up Ready and all sorts of drought resistant technologies. Monsanto is not only the leader in this space, but also has the closest thing to a monopoly.
Their last earnings release tells the story (see conference call transcript). As analysts were decreasing their estimates, Monsanto continued to outperform. They not only sell the number one herbicide on the planet, but are expecting to be releasing the first drought resistant corn seed relatively soon.
One reason Monsanto is well positioned going forward is the ease with which their products work. Round-Up herbicide basically kills all weeds. The problem with Round-Up is that it kills plants just like it does weeds. The new Round-Up ready seeds are resistant to the herbicide so a farmer can plant corn and then spray right over the top of his/her crop. Not only does this reduce weeds, but it also decreases the time it takes in application, making it possible for the farmer to plant more acres while increasing yield.
Monsanto also increased their dividend by 10% after knocking the cover off the ball with respect to earnings. Their quarterly earnings growth of 117.2% seems to be just the beginning of a multiyear move in this stock's price. The implementation of gene alterations for farming are just beginning, as their current triple stack looks to be a driver until Monsanto can get FDA approval for their drought resistant corn seed. Even more exciting would be an approval from Europe to use gene altered seeds. This is possible as farming becomes a more competitive environment.
2. Intrepid Potash (IPI)
Fertilizer stocks all look good going forward, but right now potash seems to have much more pricing power. Fertilizer is made of three components. Nitrogen is generally the largest amount and is the easiest to get on line when world usage increases. This is the cheapest and fastest element of fertilizer to increase production of. Phosphorous is the second piece of the fertilizer puzzle. This nutrient is based on sulfur rock and although the most expensive per ton, it takes is the second most expensive to come on line, and takes the second longest. The most important is potash, or potassium. For a very long time there has been a large surplus of potash. Steadily increasing population and emerging markets increasing meat consumption has created a demand for potash. Since it is mined, it is very expensive and time intensive to create new production.
IPI is the only true potash play in the United States. They supply 1.5% of global demand and 8.5% of United States demand. It is estimated that Intrepid's potash production capacity will increase 7.9% CAGR from 2007 to 2011E. Since January of 2007, Intrepid's list price for potash has increased from just under $200 a ton to approximately $800 per ton in December of 2008.
Looking at indexed prices of potash since January of 2006, this commodity has not seen one decrease in pricing as compared to 61 declines in the price of corn or 82 in the price of nickel. Urea has seen 20 and DAP has seen 14 for the same period of 153 weeks. Intrepid's 100% link to potash is comparable to Potash Corp.'s (POT) 34%, Mosaic's (MOS) 24% and Agrium's (AGU) 6%. Intrepid's potash sales are 64% agricultural, 28% industrial and 8% feed. Not only does this company have aggressive growth going forward, but also operates with zero debt.
3. Compass Minerals (CMP)
CMP is not a true agricultural play, but a large portion of its business is associated. Unlike Intrepid Potash, Compass Minerals produces sulfate of potash (SOP) as opposed to muriate of potash (MOP). MOP is used as a fertilizer for crops and also in the oil and gas drilling sectors. Sulfate of potash is used as fertilizer for citrus fruits that have a low tolerance for chloride.
To give an idea of how specialized SOP is, MOP currently has 70 million tons of production per year, where SOP is just 7 million tons. Since 2003 CMP has seen their operating earnings increase 21% CAGR. The fertilizer segment alone has seen an increase of 70% CAGR. Fertilizer is now 36% of their operating earnings. That is up 16% from just last year.
The value of SOP can also be seen as specialty crops are only 3.7% of crops harvested but produce 37% of total crop revenues. Specialty crops also have a much lower percentage of cost with respect to fertilizer and could stand much greater price increases. The average selling price for SOP in the fourth quarter was $946 per ton. This is at the same time that companies like MOS have lowered MOP projections of average selling price to approximately $520-$540 per ton.
Generally, companies produce SOP by purchasing MOP and then causing a chemical conversion with sulfuric acid. CMP uses lake brine extraction, which is much more cost effective.
Currently, CMP is planning on a production of approximately 400000 tons of SOP. By 2011, they will expand by another 100000 tons. CMP states they will be able to bring on another 400000 tons of SOP after this without increasing MOP purchases. CMP believes they will be able to expand usage of SOP by educating farmers that do not currently use specialized fertilizer. Sugarcane, blueberries and other crops should all benefit from its usage.
Compass has a healthy business with respect to salt. This remainder of their business is centered in highway deicing and water conditioning. Pricing with respect to this has been good, even in the downturn, and should continue to be so.
4. Sociedad Quimica Chile (SQM)
This company is much like Compass with respect to its specialty fertilizer. They are much more levered to specialty fertilizer than CMP is. They currently have 49% of the world's market share of potassium nitrate. This is much like sulfate of potash as it has usage with respect to high value crops. It is completely natural, has fast absorption, is water soluble and chlorine free. 55% of their current business revenues is plant nutrition. 15% is iodine and derivatives. 11% is lithium. 6% is potassium chloride, while the remainder is garnered from fertilizer trading.
They have outreach to the rest of the world that is quite impressive. They have a local presence in 20 countries.
By the second half of 2010, they will increase potassium nitrate production by 300000 tons. There are currently no new projects announced with respect to this fertilizer.
In 2008 they produced 860000 tons of KCL and SOP. It is estimated that in 2011 they will increase to 1.2 million tons. A very important change to the company looks to be their merger with Anagra SA. This will cause price synergies, allowing the company to save on costs.
5. American Vanguard (AVD)
Of all the companies on this list, AVD may be the most interesting. With a tiny market cap of under $300 million, it isn't quite a household name. What sets AVD apart is their business structure. Over the years, they have acquired effective older products that have been replaced by newer, more effective ones.
Their products include insecticides, fungicides, herbicides, and other agricultural products. The world's increased demand for corn has placed AVD in a unique position. Since many of their products are levered towards this crop they have emerged as a company that took older products and can market them together to better serve the farmer. The revitalization of mature agricultural products has worked well for AVD. By purchasing the rights they are then able to market the product to areas that have either stopped or never used. Since some of these products have been used less, many weeds that have a tolerance are still susceptible to their products.
In 2006, their technologies were used with Monsanto's trait resistance corn. AVD's Smart Box application system was used with their insecticides to increase yield by 12 bushels per acre in a major university study. Also, Impact herbicide is now being recommended as an addition to Round-Up for glyphosate resistant weeds and grasses. This works well with Round-Up Ready corn. Glyphosate resistance has been increasing due to the large applications of Round-Up. These resistances can only increase with time, leading to more use of Impact herbicide.
It would not be surprising if this company is purchased due to their small market cap and glyphosate resistant weeds. Their addition to the S&P Small Cap 600 will lead to an increase of purchases of stock for index funds, and should increase over all valuation of the stock.
Agriculture is becoming a technology investment as the old boring companies now have to develop products to compete. The irrigation systems of VMI, special seed coating of LNDC, and biodegradable plastics of ADM are all profitable plays in this environment. Current valuations seem quite low and anyone with a mid to long term investment timeframe should think about this sector. The recent $2.1 billion dollar offer by CF for TRA is evidence that companies think there is value here.
Micheal Filloon in seeking alpha.
The first and most important decision in making an investment is with regards to sectors. Before looking at any individual stocks, first find a sector that seems oversold. If a sector looks good, any stock within that group will benefit from the good news of the other stocks. These can be checked by following any of the ETFs that are sector based.
Currently, I am not very excited about anything consumer oriented. The reason for this is sentiment, as it is emotion based and can be difficult to gauge. Even the best companies in the world are finding it difficult to navigate the current environment, as disposable income has all but disappeared. A good example is Apple (AAPL), which has held up well, but has come under incredible pressure. The stock is selling for around $80 a share and that is with $30 per share cash on the balance sheet.
The banks are another difficult area to figure out. Although the US government is doing everything they can to nationalize the banks without nationalizing them, many of these will be left as only preferred stock and investors could lose their entire investment.
Those who have read my writings know that I am a pundit of agriculture. First and foremost, this sector is a need, not a want. We need food, and with corn, soybeans and wheat below inventory averages, these stockpiles will need to be built back up. Many of these stocks took it on the chin last week as the USDA report came out with abysmal numbers with respect to commodity prices. Many people thought we were going to see $8 corn, but now it looks like it will be closer to $4.
When dissecting these numbers, it seems as though this could be a buying opportunity. The reason is yield. Since we are running out of fertile land, yield is the only way to increase food production. Many of these once boring companies have become technology based.
The current environment in the United States adds bullishness to this area. After $4 a gallon gas caused the crushing of the US dollar not too long ago, many Americans are screaming for alternative uses with respect to energy. There are current technologies that will work but only one is cost effective. Liquefied and compressed natural gas could be a huge success until we are able to use other technologies such as hydrogen (although this seems to be a long way off). Since the United States feeds the world, it behooves them to use food to fill our cars. Not only is it renewable, but also pushes up the price of agricultural commodities, helping with our massive deficit. It also decreases the amount of pollution, another big topic on the Hill.
The election of a Democratic President also bodes well. Not only does this give the Democrats the Presidency, it also secures legislation as there will be no veto. Democrats have long been proponents of farmers and will continue to be. Supporting crop prices and continued subsidies will help this sector going forward. For these and many more reasons, I have placed together a list of companies that I believe have the best chance of making some serious cash for their investors.
1. Monsanto (MON)
This was a very difficult decision to make with respect to the top spot, but it was made because of seeds. The use of fertilizer can be put off, but plants cannot grow without seeds. Monsanto has watched their company grow at supersonic speed due to Round-Up Ready and all sorts of drought resistant technologies. Monsanto is not only the leader in this space, but also has the closest thing to a monopoly.
Their last earnings release tells the story (see conference call transcript). As analysts were decreasing their estimates, Monsanto continued to outperform. They not only sell the number one herbicide on the planet, but are expecting to be releasing the first drought resistant corn seed relatively soon.
One reason Monsanto is well positioned going forward is the ease with which their products work. Round-Up herbicide basically kills all weeds. The problem with Round-Up is that it kills plants just like it does weeds. The new Round-Up ready seeds are resistant to the herbicide so a farmer can plant corn and then spray right over the top of his/her crop. Not only does this reduce weeds, but it also decreases the time it takes in application, making it possible for the farmer to plant more acres while increasing yield.
Monsanto also increased their dividend by 10% after knocking the cover off the ball with respect to earnings. Their quarterly earnings growth of 117.2% seems to be just the beginning of a multiyear move in this stock's price. The implementation of gene alterations for farming are just beginning, as their current triple stack looks to be a driver until Monsanto can get FDA approval for their drought resistant corn seed. Even more exciting would be an approval from Europe to use gene altered seeds. This is possible as farming becomes a more competitive environment.
2. Intrepid Potash (IPI)
Fertilizer stocks all look good going forward, but right now potash seems to have much more pricing power. Fertilizer is made of three components. Nitrogen is generally the largest amount and is the easiest to get on line when world usage increases. This is the cheapest and fastest element of fertilizer to increase production of. Phosphorous is the second piece of the fertilizer puzzle. This nutrient is based on sulfur rock and although the most expensive per ton, it takes is the second most expensive to come on line, and takes the second longest. The most important is potash, or potassium. For a very long time there has been a large surplus of potash. Steadily increasing population and emerging markets increasing meat consumption has created a demand for potash. Since it is mined, it is very expensive and time intensive to create new production.
IPI is the only true potash play in the United States. They supply 1.5% of global demand and 8.5% of United States demand. It is estimated that Intrepid's potash production capacity will increase 7.9% CAGR from 2007 to 2011E. Since January of 2007, Intrepid's list price for potash has increased from just under $200 a ton to approximately $800 per ton in December of 2008.
Looking at indexed prices of potash since January of 2006, this commodity has not seen one decrease in pricing as compared to 61 declines in the price of corn or 82 in the price of nickel. Urea has seen 20 and DAP has seen 14 for the same period of 153 weeks. Intrepid's 100% link to potash is comparable to Potash Corp.'s (POT) 34%, Mosaic's (MOS) 24% and Agrium's (AGU) 6%. Intrepid's potash sales are 64% agricultural, 28% industrial and 8% feed. Not only does this company have aggressive growth going forward, but also operates with zero debt.
3. Compass Minerals (CMP)
CMP is not a true agricultural play, but a large portion of its business is associated. Unlike Intrepid Potash, Compass Minerals produces sulfate of potash (SOP) as opposed to muriate of potash (MOP). MOP is used as a fertilizer for crops and also in the oil and gas drilling sectors. Sulfate of potash is used as fertilizer for citrus fruits that have a low tolerance for chloride.
To give an idea of how specialized SOP is, MOP currently has 70 million tons of production per year, where SOP is just 7 million tons. Since 2003 CMP has seen their operating earnings increase 21% CAGR. The fertilizer segment alone has seen an increase of 70% CAGR. Fertilizer is now 36% of their operating earnings. That is up 16% from just last year.
The value of SOP can also be seen as specialty crops are only 3.7% of crops harvested but produce 37% of total crop revenues. Specialty crops also have a much lower percentage of cost with respect to fertilizer and could stand much greater price increases. The average selling price for SOP in the fourth quarter was $946 per ton. This is at the same time that companies like MOS have lowered MOP projections of average selling price to approximately $520-$540 per ton.
Generally, companies produce SOP by purchasing MOP and then causing a chemical conversion with sulfuric acid. CMP uses lake brine extraction, which is much more cost effective.
Currently, CMP is planning on a production of approximately 400000 tons of SOP. By 2011, they will expand by another 100000 tons. CMP states they will be able to bring on another 400000 tons of SOP after this without increasing MOP purchases. CMP believes they will be able to expand usage of SOP by educating farmers that do not currently use specialized fertilizer. Sugarcane, blueberries and other crops should all benefit from its usage.
Compass has a healthy business with respect to salt. This remainder of their business is centered in highway deicing and water conditioning. Pricing with respect to this has been good, even in the downturn, and should continue to be so.
4. Sociedad Quimica Chile (SQM)
This company is much like Compass with respect to its specialty fertilizer. They are much more levered to specialty fertilizer than CMP is. They currently have 49% of the world's market share of potassium nitrate. This is much like sulfate of potash as it has usage with respect to high value crops. It is completely natural, has fast absorption, is water soluble and chlorine free. 55% of their current business revenues is plant nutrition. 15% is iodine and derivatives. 11% is lithium. 6% is potassium chloride, while the remainder is garnered from fertilizer trading.
They have outreach to the rest of the world that is quite impressive. They have a local presence in 20 countries.
By the second half of 2010, they will increase potassium nitrate production by 300000 tons. There are currently no new projects announced with respect to this fertilizer.
In 2008 they produced 860000 tons of KCL and SOP. It is estimated that in 2011 they will increase to 1.2 million tons. A very important change to the company looks to be their merger with Anagra SA. This will cause price synergies, allowing the company to save on costs.
5. American Vanguard (AVD)
Of all the companies on this list, AVD may be the most interesting. With a tiny market cap of under $300 million, it isn't quite a household name. What sets AVD apart is their business structure. Over the years, they have acquired effective older products that have been replaced by newer, more effective ones.
Their products include insecticides, fungicides, herbicides, and other agricultural products. The world's increased demand for corn has placed AVD in a unique position. Since many of their products are levered towards this crop they have emerged as a company that took older products and can market them together to better serve the farmer. The revitalization of mature agricultural products has worked well for AVD. By purchasing the rights they are then able to market the product to areas that have either stopped or never used. Since some of these products have been used less, many weeds that have a tolerance are still susceptible to their products.
In 2006, their technologies were used with Monsanto's trait resistance corn. AVD's Smart Box application system was used with their insecticides to increase yield by 12 bushels per acre in a major university study. Also, Impact herbicide is now being recommended as an addition to Round-Up for glyphosate resistant weeds and grasses. This works well with Round-Up Ready corn. Glyphosate resistance has been increasing due to the large applications of Round-Up. These resistances can only increase with time, leading to more use of Impact herbicide.
It would not be surprising if this company is purchased due to their small market cap and glyphosate resistant weeds. Their addition to the S&P Small Cap 600 will lead to an increase of purchases of stock for index funds, and should increase over all valuation of the stock.
Agriculture is becoming a technology investment as the old boring companies now have to develop products to compete. The irrigation systems of VMI, special seed coating of LNDC, and biodegradable plastics of ADM are all profitable plays in this environment. Current valuations seem quite low and anyone with a mid to long term investment timeframe should think about this sector. The recent $2.1 billion dollar offer by CF for TRA is evidence that companies think there is value here.
Micheal Filloon in seeking alpha.
Tuesday, January 13, 2009
Comparing Fertilizers Stocks
One can correctly argue that fertilizer stocks have run out of steam. Goldman Sachs, on the one hand, is bearish, while Citigroup, Merrill Lynch and Morgan Stanley are positive on the sector going forward. I tend to take the side of the latter. Though I have a neutral rating for the time being, I personally think that this sector, which includes agriculture commodities, will outperform the most once we are out of this recession. Morgan Stanley predicted some of the fertilizer stocks to peak in 2011, the simple logic being that no matter, what the world has to eat; growing population; decrease in agricultural land; and pollution.
Fertilizers fall into three different categories: nitrogen, phosphate and potash. Prices of these three commodities have fallen significantly off the cliff. The worst decline has been in the case of nitrogen, while less in case of phosphate and significantly less for potash (due to monopoly). TRA, which is PURELY a nitrogen play, has been hit hard. The company has reduced and idled a number of its operations due to recession. TNH, which is a subsidiary of TRA, has held up relatively well, partially because of its hefty dividend of 11.80 per shares.
AGU deals in all three of these areas. However, it has a record level of inventory at 2.5 bn (almost 50% of current assets), and with demand falling off due to the credit crunch, it may have to take mark-down losses with inventory prices going down.
MOS and POT are my favorites in the area with strong balance sheets. They supply nitrogen, phosphate and potash fertilizers worldwide and are safe on the inventory side unlike AGU. POT controls 22% of the potash supply. Along with MOS and AGU, they have a monopoly in potash, whose prices have held up relatively well so far. This monopoly may not continue to exist since mining giants like RTP and BHP are entering this area. Other small competitors in this area include IPI.
Another name that strikes me is little known CF Industries (CF). It has the highest room for future growth. CF deals mainly in nitrogen and phosphate based fertilizers, both in manufacturing and retail distribution. Apart from a strong balance sheet and the lowest P/E among all, another aspect that surprises me is that the company has business ONLY in North America. Almost 90% of its revenue and profits so far come from the US. The company is building scale and operations to expand outside of the US. It hired Bert A. Frost from ADM (one of the world's largest food processing company) as VP to extend operations outside of the us US (see here). The company is in the process of finalizing new plants in Peru.
Fertilizers fall into three different categories: nitrogen, phosphate and potash. Prices of these three commodities have fallen significantly off the cliff. The worst decline has been in the case of nitrogen, while less in case of phosphate and significantly less for potash (due to monopoly). TRA, which is PURELY a nitrogen play, has been hit hard. The company has reduced and idled a number of its operations due to recession. TNH, which is a subsidiary of TRA, has held up relatively well, partially because of its hefty dividend of 11.80 per shares.
AGU deals in all three of these areas. However, it has a record level of inventory at 2.5 bn (almost 50% of current assets), and with demand falling off due to the credit crunch, it may have to take mark-down losses with inventory prices going down.
MOS and POT are my favorites in the area with strong balance sheets. They supply nitrogen, phosphate and potash fertilizers worldwide and are safe on the inventory side unlike AGU. POT controls 22% of the potash supply. Along with MOS and AGU, they have a monopoly in potash, whose prices have held up relatively well so far. This monopoly may not continue to exist since mining giants like RTP and BHP are entering this area. Other small competitors in this area include IPI.
Another name that strikes me is little known CF Industries (CF). It has the highest room for future growth. CF deals mainly in nitrogen and phosphate based fertilizers, both in manufacturing and retail distribution. Apart from a strong balance sheet and the lowest P/E among all, another aspect that surprises me is that the company has business ONLY in North America. Almost 90% of its revenue and profits so far come from the US. The company is building scale and operations to expand outside of the US. It hired Bert A. Frost from ADM (one of the world's largest food processing company) as VP to extend operations outside of the us US (see here). The company is in the process of finalizing new plants in Peru.
Friday, January 9, 2009
Mosaic: Feeding on Higher Prices, But Outlook Is Scrawny
Mosaic (MOS) is one of the world’s largest providers of phosphates and potash fertilizers and feed ingredients for the global agriculture industry. The Mosaic Company announced this week net earnings of $959.8 million, or $2.15 per diluted share, for the second quarter ended November 30, 2008. These results compare with net earnings of $394.0 million, or $0.89 per share, for the second quarter ended November 30, 2007. (See conference call transcript.)
Analysts surveyed by Thomson Reuters estimated earnings of $1.43 a share on revenue of $3 billion. Excluding one-time items, the company posted earnings of $1.56 per share, topping the $1.36 per share that analysts had forecast, according to Reuters Estimates. Net sales in the quarter rose nearly 37 percent to $3.0 billion.
Key Factors
Operating earnings were $682.0 million, or 22.7% of net sales, up from $529.6 million, or 24.1% of net sales last year
Potash operating earnings more than tripled to $547.5 million
Mosaic recorded a gain on the sale of its interest in Saskferco of $673.4 million, or $1.03 per share
An inventory valuation write-down of $293.5 million, or $0.41 per share, was recorded, as the company expects to reduce phosphate and potash production significantly during the remainder of fiscal 2009 Mosaic’s second quarter results were driven by higher DAP and MOP selling prices and the gain on the sale of Saskferco, offsetting the impact of lower sales volumes and the inventory valuation write-down. Overall poor market conditions and steep declines in raw materials costs were the main causes for the valuation write down The inventory valuation write-down in the second quarter was necessary because the carrying cost of ending phosphate inventories, which included higher sulfur and ammonia costs, exceeded estimates of future phosphate selling prices
Jim Prokopanko, Mosaic’s President and Chief Executive Officer. “Toward the end of the quarter, however, worldwide crop nutrient sales activity dropped sharply, and it is expected to remain weak through at least the third quarter. Because of these conditions, we are reducing our production to manage excess inventories, reducing capital expenditures, and working to maintain financial strength and flexibility.”
The Potash segment’s total sales volume was 1.7 million tonnes for the second quarter compared with second quarter volume of 2.0 million tonnes a year ago. The decline in sales volumes was primarily due to lower customer demand. Sales volumes are expected to remain weak at least through the third quarter with realized prices expected to decline slightly compared to second quarter levels. To better manage growing inventory levels, Mosaic is reducing potash production by up to one million tonnes in the second half of fiscal 2009.
Outlook
Long-term world grain and oilseed use is expected to continue to increase at a faster pace than historical trends due to steady population growth, higher per capita incomes and further increases in biofuels production. This will require additional harvested area and steady increases in yields, which can be accomplished through more intensive and balanced crop nutrient use and improved crop genetics.
..Bullish bankers in seeking alpha
Analysts surveyed by Thomson Reuters estimated earnings of $1.43 a share on revenue of $3 billion. Excluding one-time items, the company posted earnings of $1.56 per share, topping the $1.36 per share that analysts had forecast, according to Reuters Estimates. Net sales in the quarter rose nearly 37 percent to $3.0 billion.
Key Factors
Operating earnings were $682.0 million, or 22.7% of net sales, up from $529.6 million, or 24.1% of net sales last year
Potash operating earnings more than tripled to $547.5 million
Mosaic recorded a gain on the sale of its interest in Saskferco of $673.4 million, or $1.03 per share
An inventory valuation write-down of $293.5 million, or $0.41 per share, was recorded, as the company expects to reduce phosphate and potash production significantly during the remainder of fiscal 2009 Mosaic’s second quarter results were driven by higher DAP and MOP selling prices and the gain on the sale of Saskferco, offsetting the impact of lower sales volumes and the inventory valuation write-down. Overall poor market conditions and steep declines in raw materials costs were the main causes for the valuation write down The inventory valuation write-down in the second quarter was necessary because the carrying cost of ending phosphate inventories, which included higher sulfur and ammonia costs, exceeded estimates of future phosphate selling prices
Jim Prokopanko, Mosaic’s President and Chief Executive Officer. “Toward the end of the quarter, however, worldwide crop nutrient sales activity dropped sharply, and it is expected to remain weak through at least the third quarter. Because of these conditions, we are reducing our production to manage excess inventories, reducing capital expenditures, and working to maintain financial strength and flexibility.”
The Potash segment’s total sales volume was 1.7 million tonnes for the second quarter compared with second quarter volume of 2.0 million tonnes a year ago. The decline in sales volumes was primarily due to lower customer demand. Sales volumes are expected to remain weak at least through the third quarter with realized prices expected to decline slightly compared to second quarter levels. To better manage growing inventory levels, Mosaic is reducing potash production by up to one million tonnes in the second half of fiscal 2009.
Outlook
Long-term world grain and oilseed use is expected to continue to increase at a faster pace than historical trends due to steady population growth, higher per capita incomes and further increases in biofuels production. This will require additional harvested area and steady increases in yields, which can be accomplished through more intensive and balanced crop nutrient use and improved crop genetics.
..Bullish bankers in seeking alpha
Thursday, January 8, 2009
Agrium a True "Growth" Story
Agrium Inc. (NYSE: AGU - News), based in Alberta, Canada, is a major retailer of agricultural products and services in North and South America, a leading global wholesale producer and marketer of all three major agricultural macronutrients such as nitrogen, potash, and phosphate, and a premier supplier of micronutrients and specialty fertilizers.
Agrium is growing through acquisition and organic expansion. The acquisition of United Agri-Products is driving revenues and profits supported by an expanded product line in the major business segment. However, the company is witnessing weak demand and prices for its fertilizers.
Nonetheless, Agrium expects the fall in demand and prices to be temporary. The company has reaffirmed its earnings guidance for the second half of fiscal 2008. The company also has a significant free cash flow. Therefore, we rate the shares a Buy with a target of $43.00.
Agrium is growing through acquisition and organic expansion. The acquisition of United Agri-Products is driving revenues and profits supported by an expanded product line in the major business segment. However, the company is witnessing weak demand and prices for its fertilizers.
Nonetheless, Agrium expects the fall in demand and prices to be temporary. The company has reaffirmed its earnings guidance for the second half of fiscal 2008. The company also has a significant free cash flow. Therefore, we rate the shares a Buy with a target of $43.00.
Wednesday, January 7, 2009
POT chart pattern
Potash Corp. Saskatchewan (NYSE:POT) is a nice example of a reverse head and shoulders. Notice that price has already cleared the neckline, which is necessary for the pattern to be valid. Often, price will throw back to test the neckline breakout and usually offers the highest risk/reward entry.
While most reverse head-and-shoulders patterns have a downward slant to them, it is important to note they could also be horizontal or even slant slightly upward. Again, the more important factor is to watch price action.
While most reverse head-and-shoulders patterns have a downward slant to them, it is important to note they could also be horizontal or even slant slightly upward. Again, the more important factor is to watch price action.
Mosaic, Mo' Problems
Last quarter, Mosaic's (NYSE: MOS) earnings jumped, and its shares got dumped -- largely because of an overstuffed phosphate pipeline. Oversupply is still the issue, but investors were better prepared for today's news -- thanks in part to a warning that came out last month.
Average phosphate prices peaked at more than $1,000 per metric ton for the second fiscal quarter, but sales volume of the fertilizer fell almost in half. Prices reversed course late in the quarter, and judging by the price collapse in raw-material inputs such as sulphur and ammonia, they have a lot of room to fall.
On its conference call, management described the current market dynamics as a game of chicken. Whereas farmers in the likes of Brazil appear to be struggling with access to credit (bad news for equipment suppliers such as AGCO (NYSE: AG)), U.S. farmers are flush, content to sit back and wait for lower fertilizer prices.
Unfortunately, the more that phosphate producers such as Mosaic, Agrium (NYSE: AGU), and PotashCorp (NYSE: POT) take production offline -- Mosaic says that more than half the world's capacity has already been idled -- the longer it takes to get the supply chain humming along again. This situation extends beyond the suppliers to rail operators such as Burlington Northern Santa Fe (NYSE: BNI), whose chemical car loads fell dramatically in the final weeks of 2008. The fertilizer pipeline is stuffed today, but in a few months' time, it could be too late to get fertilizer to everyone desiring it.
That's what commodity cycles do -- they sow their own seeds of recovery and decline. Mosaic has no illusions about the nasty quarter to come -- the company expects to experience an operating cash outflow. But come springtime, we might see a bit more spring in the fertilizer maker's step.
Average phosphate prices peaked at more than $1,000 per metric ton for the second fiscal quarter, but sales volume of the fertilizer fell almost in half. Prices reversed course late in the quarter, and judging by the price collapse in raw-material inputs such as sulphur and ammonia, they have a lot of room to fall.
On its conference call, management described the current market dynamics as a game of chicken. Whereas farmers in the likes of Brazil appear to be struggling with access to credit (bad news for equipment suppliers such as AGCO (NYSE: AG)), U.S. farmers are flush, content to sit back and wait for lower fertilizer prices.
Unfortunately, the more that phosphate producers such as Mosaic, Agrium (NYSE: AGU), and PotashCorp (NYSE: POT) take production offline -- Mosaic says that more than half the world's capacity has already been idled -- the longer it takes to get the supply chain humming along again. This situation extends beyond the suppliers to rail operators such as Burlington Northern Santa Fe (NYSE: BNI), whose chemical car loads fell dramatically in the final weeks of 2008. The fertilizer pipeline is stuffed today, but in a few months' time, it could be too late to get fertilizer to everyone desiring it.
That's what commodity cycles do -- they sow their own seeds of recovery and decline. Mosaic has no illusions about the nasty quarter to come -- the company expects to experience an operating cash outflow. But come springtime, we might see a bit more spring in the fertilizer maker's step.
Mosaic, Mo' Problems
Last quarter, Mosaic's (NYSE: MOS) earnings jumped, and its shares got dumped -- largely because of an overstuffed phosphate pipeline. Oversupply is still the issue, but investors were better prepared for today's news -- thanks in part to a warning that came out last month.
Average phosphate prices peaked at more than $1,000 per metric ton for the second fiscal quarter, but sales volume of the fertilizer fell almost in half. Prices reversed course late in the quarter, and judging by the price collapse in raw-material inputs such as sulphur and ammonia, they have a lot of room to fall.
On its conference call, management described the current market dynamics as a game of chicken. Whereas farmers in the likes of Brazil appear to be struggling with access to credit (bad news for equipment suppliers such as AGCO (NYSE: AG)), U.S. farmers are flush, content to sit back and wait for lower fertilizer prices.
Unfortunately, the more that phosphate producers such as Mosaic, Agrium (NYSE: AGU), and PotashCorp (NYSE: POT) take production offline -- Mosaic says that more than half the world's capacity has already been idled -- the longer it takes to get the supply chain humming along again. This situation extends beyond the suppliers to rail operators such as Burlington Northern Santa Fe (NYSE: BNI), whose chemical car loads fell dramatically in the final weeks of 2008. The fertilizer pipeline is stuffed today, but in a few months' time, it could be too late to get fertilizer to everyone desiring it.
That's what commodity cycles do -- they sow their own seeds of recovery and decline. Mosaic has no illusions about the nasty quarter to come -- the company expects to experience an operating cash outflow. But come springtime, we might see a bit more spring in the fertilizer maker's step.
Average phosphate prices peaked at more than $1,000 per metric ton for the second fiscal quarter, but sales volume of the fertilizer fell almost in half. Prices reversed course late in the quarter, and judging by the price collapse in raw-material inputs such as sulphur and ammonia, they have a lot of room to fall.
On its conference call, management described the current market dynamics as a game of chicken. Whereas farmers in the likes of Brazil appear to be struggling with access to credit (bad news for equipment suppliers such as AGCO (NYSE: AG)), U.S. farmers are flush, content to sit back and wait for lower fertilizer prices.
Unfortunately, the more that phosphate producers such as Mosaic, Agrium (NYSE: AGU), and PotashCorp (NYSE: POT) take production offline -- Mosaic says that more than half the world's capacity has already been idled -- the longer it takes to get the supply chain humming along again. This situation extends beyond the suppliers to rail operators such as Burlington Northern Santa Fe (NYSE: BNI), whose chemical car loads fell dramatically in the final weeks of 2008. The fertilizer pipeline is stuffed today, but in a few months' time, it could be too late to get fertilizer to everyone desiring it.
That's what commodity cycles do -- they sow their own seeds of recovery and decline. Mosaic has no illusions about the nasty quarter to come -- the company expects to experience an operating cash outflow. But come springtime, we might see a bit more spring in the fertilizer maker's step.
Monsanto Earnings - Quite Awesome
Mosaic (MOS), which we sold yesterday, is riding the Monsanto (MON) earnings report today. They are different businesses, but both are in the agriculture space. Monsanto has confused me from a stock perspective; despite having one of the highest "moats" in the business (barriers to entry), it simply has not reacted with the rest of the commodity complex. Further confusing is its revenue stream should be a lot more secure than a fertilizer company, hence the weakness has been strange.
Until this morning, the stock has been stuck below the 50 day moving average, and basically "asleep". I've always wanted to own this stock, but the valuation has always been immense, and of late I've been waiting for the chart to improve. The 50 day moving average is about $76, and the stock gapped up over it - from $74 yesterday to low $80s today. My expectation is at some point, the stock will come back and "fill the gap" at $76 or so and then we'll see how it reacts. If it "bounces" we'll want to jump in, if it breaks down, then obviously the market is not ready to give this stock a longer run.
Earnings were stellar...and guidance was raised (again) - this company has a history of raising guidance continuously.
Monsanto Co., the world's biggest seed maker, said Wednesday its fiscal first-quarter profit more than doubled on higher sales to Latin America, and raised its expectations for the year.
The St. Louis-based company said it earned $556 million, or $1 per share, in the three months ended Nov. 30. That compares with $256 million, or 46 cents per share, a year ago. Monsanto said it earned 98 cents per share excluding gains from discontinued operations.
Monsanto said revenue jumped 29 percent to $2.65 billion from $2.05 billion, as sales of Roundup and other herbicides and corn seeds and traits climbed more than 30 percent each. Monsanto reported strong demand for its weed killers in Brazil, and total herbicide sales rose 35 percent to $1.36 billion. Revenue from the company's agricultural productivity unit increased 28 percent to $1.55 billion.
It also made gains in sales of genetically modified seeds. Monsanto said total seeds and genomics sales were up 31 percent, to $1.1 billion. That includes a 34 percent surge in corn seed and trait sales. Growing demand from Brazil and the U.S. pushed those sales to $628 million, Monsanto said.
Latin American sales make up the bulk of Monsanto's first-quarter revenue. Most of the company's revenue come from its U.S. business, where sales pick up in the second and third quarters. Soybean seed and trait sales grew 31 percent to $212 million, which Monsanto credit to demand from early growers in the U.S.
Cash flow
Monsanto also now expects its free cash to be slightly above $1.8 billion for fiscal 2009, underscoring the company's ability to grow yet maintain its financial discipline.
Guidance
Monsanto now forecasts an adjusted profit of $4.40 to $4.50 per share in fiscal 2009, up from $4.20 to $4.40 per share. The new outlook includes only results from ongoing operations, and does not include the effects of its purchase of a Brazilian sugar cane business.. trading mark in seeeking alpha
Until this morning, the stock has been stuck below the 50 day moving average, and basically "asleep". I've always wanted to own this stock, but the valuation has always been immense, and of late I've been waiting for the chart to improve. The 50 day moving average is about $76, and the stock gapped up over it - from $74 yesterday to low $80s today. My expectation is at some point, the stock will come back and "fill the gap" at $76 or so and then we'll see how it reacts. If it "bounces" we'll want to jump in, if it breaks down, then obviously the market is not ready to give this stock a longer run.
Earnings were stellar...and guidance was raised (again) - this company has a history of raising guidance continuously.
Monsanto Co., the world's biggest seed maker, said Wednesday its fiscal first-quarter profit more than doubled on higher sales to Latin America, and raised its expectations for the year.
The St. Louis-based company said it earned $556 million, or $1 per share, in the three months ended Nov. 30. That compares with $256 million, or 46 cents per share, a year ago. Monsanto said it earned 98 cents per share excluding gains from discontinued operations.
Monsanto said revenue jumped 29 percent to $2.65 billion from $2.05 billion, as sales of Roundup and other herbicides and corn seeds and traits climbed more than 30 percent each. Monsanto reported strong demand for its weed killers in Brazil, and total herbicide sales rose 35 percent to $1.36 billion. Revenue from the company's agricultural productivity unit increased 28 percent to $1.55 billion.
It also made gains in sales of genetically modified seeds. Monsanto said total seeds and genomics sales were up 31 percent, to $1.1 billion. That includes a 34 percent surge in corn seed and trait sales. Growing demand from Brazil and the U.S. pushed those sales to $628 million, Monsanto said.
Latin American sales make up the bulk of Monsanto's first-quarter revenue. Most of the company's revenue come from its U.S. business, where sales pick up in the second and third quarters. Soybean seed and trait sales grew 31 percent to $212 million, which Monsanto credit to demand from early growers in the U.S.
Cash flow
Monsanto also now expects its free cash to be slightly above $1.8 billion for fiscal 2009, underscoring the company's ability to grow yet maintain its financial discipline.
Guidance
Monsanto now forecasts an adjusted profit of $4.40 to $4.50 per share in fiscal 2009, up from $4.20 to $4.40 per share. The new outlook includes only results from ongoing operations, and does not include the effects of its purchase of a Brazilian sugar cane business.. trading mark in seeeking alpha
Monsanto Keeps Flourishing
Monsanto Co. (MON) gained nearly 18% on Wedenesday, after the world's largest seed maker doubled its quarterly profit and boosted its full-year guidance, aided by rising demand of weed killers in Brazil and strong sales trends for corn seeds in the new planting season.?
The company's third-quarter results included earnings of?$556 million, or $1 per share, compared with $256 million, or 46 cents per share, a year ago. Excluding gains from discontinued operations, profit was 98 cents per share. The results include a tax gain of 8 cents per share. Even then, Monsanto comfortably exceeded the consensus estimate of 60 cents per share.
The company now expects to earn between $4.40 and $4.50 per share in fiscal 2009, up from its prior forecast of $4.20 and $4.40. As investors rejoiced the superior performance and better outlook, Monsanto traded up as high as $86 at noon on the New York Stock Exchange. ..zacks.com
The company's third-quarter results included earnings of?$556 million, or $1 per share, compared with $256 million, or 46 cents per share, a year ago. Excluding gains from discontinued operations, profit was 98 cents per share. The results include a tax gain of 8 cents per share. Even then, Monsanto comfortably exceeded the consensus estimate of 60 cents per share.
The company now expects to earn between $4.40 and $4.50 per share in fiscal 2009, up from its prior forecast of $4.20 and $4.40. As investors rejoiced the superior performance and better outlook, Monsanto traded up as high as $86 at noon on the New York Stock Exchange. ..zacks.com
Smart Seeds, Smart Crops
New drug- and drought-tolerant crops could mitigate the growing food crisis, according to Syngenta CEO Mike Mack.
Almost a decade ago, there was a meeting of world leaders who agreed to the U.N. Millennium Development Goals, which called for, among other things, halving world hunger between 1990 and 2015. The percentage of the world living in hunger had been in decline, but with attention now focused on the global financial crisis and food prices much higher than in the past, achieving that goal appears unlikely.
A number of companies--such as Basel, Switzerland-based Syngenta (nyse: SYT - news - people ); St. Louis-based Monsanto (nyse: MON - news - people ); Indianapolis-based Dow Agrosciences, a division of Dow Chemical (nyse: DOW - news - people ); and Ludwigshafen, Germany-based BASF (nyse: BF - news - people )--are trying to do something about this. These companies have been developing innovative new technologies to enhance food production
We spoke with the chief executive officer of Syngenta, Mike Mack, to find out exactly what his company is doing--and whether companies like his can help to make progress against rising world hunger.
Forbes: Syngenta is playing a critical role in enhancing food production. What kinds of innovative new technologies are you developing and how will they contribute to alleviating world hunger?
Mack: World hunger is a serious problem, especially when you consider it from the vantage point of limited land availability. When you look at land already under cultivation, there are about 150 million additional hectares of land that could be brought under cultivation. But that alone is not a good idea from a sustainability point of view. Instead, we need to look at enhancing a plant's potential life. We see limitless potential for crops and for all kinds of vegetable seeds to create more food, more fuel and more fiber. There is lots of innovation taking place here, but it is still an area that needs to be more fully explored.
So what are some of the innovations under way right now that could help to alleviate this pending food shortage crisis?
In the area of seed development, our ability to understand the genome of the crops gets better all the time, and so the pace of innovation is speeding up a great deal. We are increasing our knowledge of the plant so that we can understand how gene reactions occur and incorporate that information into seeds to come up with new varieties.
Almost a decade ago, there was a meeting of world leaders who agreed to the U.N. Millennium Development Goals, which called for, among other things, halving world hunger between 1990 and 2015. The percentage of the world living in hunger had been in decline, but with attention now focused on the global financial crisis and food prices much higher than in the past, achieving that goal appears unlikely.
A number of companies--such as Basel, Switzerland-based Syngenta (nyse: SYT - news - people ); St. Louis-based Monsanto (nyse: MON - news - people ); Indianapolis-based Dow Agrosciences, a division of Dow Chemical (nyse: DOW - news - people ); and Ludwigshafen, Germany-based BASF (nyse: BF - news - people )--are trying to do something about this. These companies have been developing innovative new technologies to enhance food production
We spoke with the chief executive officer of Syngenta, Mike Mack, to find out exactly what his company is doing--and whether companies like his can help to make progress against rising world hunger.
Forbes: Syngenta is playing a critical role in enhancing food production. What kinds of innovative new technologies are you developing and how will they contribute to alleviating world hunger?
Mack: World hunger is a serious problem, especially when you consider it from the vantage point of limited land availability. When you look at land already under cultivation, there are about 150 million additional hectares of land that could be brought under cultivation. But that alone is not a good idea from a sustainability point of view. Instead, we need to look at enhancing a plant's potential life. We see limitless potential for crops and for all kinds of vegetable seeds to create more food, more fuel and more fiber. There is lots of innovation taking place here, but it is still an area that needs to be more fully explored.
So what are some of the innovations under way right now that could help to alleviate this pending food shortage crisis?
In the area of seed development, our ability to understand the genome of the crops gets better all the time, and so the pace of innovation is speeding up a great deal. We are increasing our knowledge of the plant so that we can understand how gene reactions occur and incorporate that information into seeds to come up with new varieties.
Tuesday, January 6, 2009
The Good and Bad of Fertilizer Stocks
It seems like it’s been years since CNN Money opined, “Who needs Google and Apple? Agriculture companies are the new ‘it’ stocks.” But that was just six months ago.
Since then, agriculture stocks turned shooting stars to exploding supernovas. Leading the way down has been fertilizer stocks. Shares of former Wall Street and momentum chasing hedge fund darlings Potash Corp (POT:NYSE), Mosaic (MOS:NYSE), CF Industries (NYSE:CF), and Agrium (AGU:NYSE) have led the way down. And practically all of them have cut their production for 2009.
The sell-off has come from deleveraging hedge funds, mutual funds selling to meet redemptions, and the market realizing not all fertilizer companies are created equal. Meanwhile, the long-term outlook for fertilizer hasn’t changed much at all. Global demand for food will rise again, we’ve hit Peak Soil and most of the world’s arable is already utilized, and global soil qualities are in decline. Basically, farmers have to produce more from less and the only near-term solution is fertilizer.
So with the waters calming down a bit, fertilizer stocks are looking pretty good once again.
The Bottom Up
From a bottom up perspective, fertilizer stocks have remained very cheap relative to earnings. The forward P/E ratios are in single-digits across the board in fertilizer stocks. The worst is mostly priced in, although probably not completely.
A couple of weeks ago, a negative report on fertilizer from Goldman Sachs sent fertilizer stocks plummeting. Goldman’s Robert court stated, “U.S. farmers may plant 85 million acres of corn next year, down 2 million acres from this year and 5 million less than Goldman’s previous estimate.”
Just a week before that though, Merrill Lynch raised its rating on all the major fertilizer stocks to “buy.” Merrill cited solid long-term fundamentals and “attractive acquisition opportunities.”
One says buy, the other says sell…no help there (as usual). We can glean from the conflicting opinions, however, that fertilizer stocks are priced for an OK year. Sentiment is split. Some are expecting bad, others good. So we have to ask will it really be an OK year for fertilizer?
Well…if we look at fertilizer prices from a top down perspective, we’ve got some very solid potential for some and much less so for others.
The Top Down
When choosing fertilizer stocks though, you’ve got to look at each individual type of fertilizer. They all have different product mixes. The mix can make a big difference in the bottom line. For instance, nitrogen and phosphate prices have fallen off a cliff just like most other commodities. Meanwhile, potash prices have held up very well.
Nitrogen – Corn production requires a lot of nitrogen. Nearly 45% of all nitrogen fertilizer is used for corn. As a result, nitrogen prices are highly correlated to corn prices and demand for nitrogen moves in lockstep with corn plantings. So when corn demand for food, livestock feed, and ethanol is on the downswing, nitrogen demand will go right down with it.
A recent article in the Grant Tribune Sentinel (out of Grant, Nebraska – I find the local papers in the corn belt to be far superior to the big Wall Street researchers when it comes to fertilizer) says it best, “Demand for ethanol has declined with the drastically decreased crude oil and gas prices. Late harvest, high prices and wet soils limited corn belt nitrogen application this fall to about 50 percent of normal.”
That’s why nitrogen prices have tumbled and why the shares of nitrogen fertilizer producers have tumbled. The same paper goes on to say, “Barge traffic up the Mississippi is closed for winter, storage is full, and there are tanker ships sitting off Tampa full of ammonia that is being offered for less than $200 [per tonne], but there are no buyers and no place to move it.”
Prices down, no buyers at any price, tanker ships full of the stuff just waiting? Sounds like when oil prices were setting new lows. Of course, all this is a sign nitrogen prices are bottoming out.
Phosphorus – Phosphate prices have collapsed as well. They’ve fallen faster than nitrogen and global production continues to get cut back.
Last summer, when phosphate prices went parabolic, China started taxing all exports to keep as much of it in the country as possible. Last month, China dropped the export tax. That leads me to believe they have plenty of supply…probably too much.
The problem with phosphates is that extra supply isn’t going to get soaked up by the rest of the world either. Phosphate producers in Europe and North America have all announced sharp cuts in output.
Potash – From an investor’s perspective, potash is a much safer bet than phosphate and nitrogen. Potash is protected by a virtual monopoly. Canpotex (a consortium owned by Agrium, Potash Corp, and Mosaic) and BPC (Belarusian Potash and Uralkaly (URALY.PK)) together control 70% of the world’s potash exports. That’s a big reason why potash prices have held up. The latest reported price from November was $872.50 per tonne in Vancouver.
The other reason is the capital costs and time required to start a potash mine. It costs between $1.5 and $2.5 billion (heavily dependent on commodity prices) and 5-7 years to open a new potash mine. That’s why no new potash mines have gone into production despite the tripling of potash prices over the past few years.
That’s also why potash prices aren’t nearly as volatile and fertilizer producers which produce potash offer an added layer of safety.
At the end of the day it comes down to valuation, right now, we’re at the lower end of the range for fertilizer stocks.
As I said before, fertilizer stocks are priced for an “OK” year. And with fertilizer prices so low, less than stellar expectations are justified. The potash fertilizer producers, however, will likely have another “better than OK” year and that’s why I recommend sticking to them.
Barring a global depression, shares of potash producers (i.e. Potash Corp, Intrepid, Mosaic)will be some of the top performing stocks over the next five years or so until new potash production comes on line. The “reset” button has been pressed on the agriculture boom and the next year or two should provide plenty of opportunities to buy when expectations are low and the valuations are cheap. Right now, expectations are pretty low... Andrew Mickey in seeking alpha
Since then, agriculture stocks turned shooting stars to exploding supernovas. Leading the way down has been fertilizer stocks. Shares of former Wall Street and momentum chasing hedge fund darlings Potash Corp (POT:NYSE), Mosaic (MOS:NYSE), CF Industries (NYSE:CF), and Agrium (AGU:NYSE) have led the way down. And practically all of them have cut their production for 2009.
The sell-off has come from deleveraging hedge funds, mutual funds selling to meet redemptions, and the market realizing not all fertilizer companies are created equal. Meanwhile, the long-term outlook for fertilizer hasn’t changed much at all. Global demand for food will rise again, we’ve hit Peak Soil and most of the world’s arable is already utilized, and global soil qualities are in decline. Basically, farmers have to produce more from less and the only near-term solution is fertilizer.
So with the waters calming down a bit, fertilizer stocks are looking pretty good once again.
The Bottom Up
From a bottom up perspective, fertilizer stocks have remained very cheap relative to earnings. The forward P/E ratios are in single-digits across the board in fertilizer stocks. The worst is mostly priced in, although probably not completely.
A couple of weeks ago, a negative report on fertilizer from Goldman Sachs sent fertilizer stocks plummeting. Goldman’s Robert court stated, “U.S. farmers may plant 85 million acres of corn next year, down 2 million acres from this year and 5 million less than Goldman’s previous estimate.”
Just a week before that though, Merrill Lynch raised its rating on all the major fertilizer stocks to “buy.” Merrill cited solid long-term fundamentals and “attractive acquisition opportunities.”
One says buy, the other says sell…no help there (as usual). We can glean from the conflicting opinions, however, that fertilizer stocks are priced for an OK year. Sentiment is split. Some are expecting bad, others good. So we have to ask will it really be an OK year for fertilizer?
Well…if we look at fertilizer prices from a top down perspective, we’ve got some very solid potential for some and much less so for others.
The Top Down
When choosing fertilizer stocks though, you’ve got to look at each individual type of fertilizer. They all have different product mixes. The mix can make a big difference in the bottom line. For instance, nitrogen and phosphate prices have fallen off a cliff just like most other commodities. Meanwhile, potash prices have held up very well.
Nitrogen – Corn production requires a lot of nitrogen. Nearly 45% of all nitrogen fertilizer is used for corn. As a result, nitrogen prices are highly correlated to corn prices and demand for nitrogen moves in lockstep with corn plantings. So when corn demand for food, livestock feed, and ethanol is on the downswing, nitrogen demand will go right down with it.
A recent article in the Grant Tribune Sentinel (out of Grant, Nebraska – I find the local papers in the corn belt to be far superior to the big Wall Street researchers when it comes to fertilizer) says it best, “Demand for ethanol has declined with the drastically decreased crude oil and gas prices. Late harvest, high prices and wet soils limited corn belt nitrogen application this fall to about 50 percent of normal.”
That’s why nitrogen prices have tumbled and why the shares of nitrogen fertilizer producers have tumbled. The same paper goes on to say, “Barge traffic up the Mississippi is closed for winter, storage is full, and there are tanker ships sitting off Tampa full of ammonia that is being offered for less than $200 [per tonne], but there are no buyers and no place to move it.”
Prices down, no buyers at any price, tanker ships full of the stuff just waiting? Sounds like when oil prices were setting new lows. Of course, all this is a sign nitrogen prices are bottoming out.
Phosphorus – Phosphate prices have collapsed as well. They’ve fallen faster than nitrogen and global production continues to get cut back.
Last summer, when phosphate prices went parabolic, China started taxing all exports to keep as much of it in the country as possible. Last month, China dropped the export tax. That leads me to believe they have plenty of supply…probably too much.
The problem with phosphates is that extra supply isn’t going to get soaked up by the rest of the world either. Phosphate producers in Europe and North America have all announced sharp cuts in output.
Potash – From an investor’s perspective, potash is a much safer bet than phosphate and nitrogen. Potash is protected by a virtual monopoly. Canpotex (a consortium owned by Agrium, Potash Corp, and Mosaic) and BPC (Belarusian Potash and Uralkaly (URALY.PK)) together control 70% of the world’s potash exports. That’s a big reason why potash prices have held up. The latest reported price from November was $872.50 per tonne in Vancouver.
The other reason is the capital costs and time required to start a potash mine. It costs between $1.5 and $2.5 billion (heavily dependent on commodity prices) and 5-7 years to open a new potash mine. That’s why no new potash mines have gone into production despite the tripling of potash prices over the past few years.
That’s also why potash prices aren’t nearly as volatile and fertilizer producers which produce potash offer an added layer of safety.
At the end of the day it comes down to valuation, right now, we’re at the lower end of the range for fertilizer stocks.
As I said before, fertilizer stocks are priced for an “OK” year. And with fertilizer prices so low, less than stellar expectations are justified. The potash fertilizer producers, however, will likely have another “better than OK” year and that’s why I recommend sticking to them.
Barring a global depression, shares of potash producers (i.e. Potash Corp, Intrepid, Mosaic)will be some of the top performing stocks over the next five years or so until new potash production comes on line. The “reset” button has been pressed on the agriculture boom and the next year or two should provide plenty of opportunities to buy when expectations are low and the valuations are cheap. Right now, expectations are pretty low... Andrew Mickey in seeking alpha
Monday, January 5, 2009
Options: Bullish Put Sale in Mosaic
After the close tonight, Mosaic(MOS Quote - Cramer on MOS - Stock Picks) announced its second- quarter results: EPS of $2.15. The initial share reaction was a selloff of less than a dollar to $36.90 from a closing level of $37.67. But at least one option trader was bullish today by selling puts in February.
Today, more than 6,000 of the February 35 puts traded vs. an open interest of just 516. Most of the larger volume in these puts today was on the sell side, and the puts closed around $3.30. The break-evens on these puts for the sellers is $31.70, meaning that the seller will start to lose money if the stock is below $31.70 at expiration.
Watching put activity like this in MOS is a microcosm of the way investors are taking advantage of historically high implied volatility levels right now. With a closing price of $3.30 on these February 35 puts and a stock price of $37.67, that implies a volatility level of 86. Compared to the 63-day historical volatility of 140, that might seem low, but relative to the 60 level of historical volatility in the stock last spring, it is clearly still high. Add to that the fact that the stock has typically held the $30 level for the last three months, and this put-seller is taking advantage of both good break-evens and a potential decline in implied volatility.
Options activity like this does not mean that investors should run right out and buy lots of MOS. But it does provide a glimpse into how investors are using options to put on diverse risk profiles. In order for this put sale to work, the investor does not need the stock to go up. In fact, if the stock rallies more than $3.30, he will wish that he had bought the stock instead of selling the put. But the put sale will pay off even if the stock falls a little, as long as it does not fall too much. After the big rebound in shares of MOS and other fertilizer stocks in the last month, that might be just what this investor is thinking.
Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Today, more than 6,000 of the February 35 puts traded vs. an open interest of just 516. Most of the larger volume in these puts today was on the sell side, and the puts closed around $3.30. The break-evens on these puts for the sellers is $31.70, meaning that the seller will start to lose money if the stock is below $31.70 at expiration.
Watching put activity like this in MOS is a microcosm of the way investors are taking advantage of historically high implied volatility levels right now. With a closing price of $3.30 on these February 35 puts and a stock price of $37.67, that implies a volatility level of 86. Compared to the 63-day historical volatility of 140, that might seem low, but relative to the 60 level of historical volatility in the stock last spring, it is clearly still high. Add to that the fact that the stock has typically held the $30 level for the last three months, and this put-seller is taking advantage of both good break-evens and a potential decline in implied volatility.
Options activity like this does not mean that investors should run right out and buy lots of MOS. But it does provide a glimpse into how investors are using options to put on diverse risk profiles. In order for this put sale to work, the investor does not need the stock to go up. In fact, if the stock rallies more than $3.30, he will wish that he had bought the stock instead of selling the put. But the put sale will pay off even if the stock falls a little, as long as it does not fall too much. After the big rebound in shares of MOS and other fertilizer stocks in the last month, that might be just what this investor is thinking.
Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Mosaic profit up, will cut fertilizer output
NEW YORK (Reuters) - North American fertilizer company Mosaic Co (NYSE:MOS - News) said on Monday its quarterly profit jumped, boosted by rising potash and phosphate sales, but said it would cut output and expected weak results for its current quarter.
Global crop nutrient sales fell sharply at the end of its fiscal quarter, the company said, and were expected to remain weak through February.
"Because of these conditions, we are reducing our production to manage excess inventories, reducing capital expenditures, and working to maintain financial strength and flexibility," Jim Prokopanko, Mosaic's president and chief executive, said in a statement.
Net earnings for the quarter ended November 30 rose to $959.8 million, or $2.15 per share, from $394 million, or 89 cents per share, in the year-ago quarter.
The current earnings included a gain of $1.03 per share from the $1.6 billion sale of its interest in nitrogen fertilizer company Saskferco, as well as a 41 cent charge for the write-down of inventories.
Excluding one-time items, the company posted earnings of $1.56 per share, topping the $1.36 per share that analysts had forecast, according to Reuters Estimates.
Net sales in the quarter rose nearly 37 percent to $3.0 billion.
Shares in Mosaic rose 1.2 percent in after hours trading to $37.30 per share.
Global crop nutrient sales fell sharply at the end of its fiscal quarter, the company said, and were expected to remain weak through February.
"Because of these conditions, we are reducing our production to manage excess inventories, reducing capital expenditures, and working to maintain financial strength and flexibility," Jim Prokopanko, Mosaic's president and chief executive, said in a statement.
Net earnings for the quarter ended November 30 rose to $959.8 million, or $2.15 per share, from $394 million, or 89 cents per share, in the year-ago quarter.
The current earnings included a gain of $1.03 per share from the $1.6 billion sale of its interest in nitrogen fertilizer company Saskferco, as well as a 41 cent charge for the write-down of inventories.
Excluding one-time items, the company posted earnings of $1.56 per share, topping the $1.36 per share that analysts had forecast, according to Reuters Estimates.
Net sales in the quarter rose nearly 37 percent to $3.0 billion.
Shares in Mosaic rose 1.2 percent in after hours trading to $37.30 per share.
Feed the need
Investors have had quite a rollercoaster ride with fertilizer stocks like PotashCorp and Mosaic (NYSE: MOS) in 2008. The demand cycle that had been pushing commodity prices through the roof started to slip late in the year, sending shares plummeting. The global economic crisis cut demand for crop nutrients such as potash, nitrogen, and phosphate, and PotashCorp reported weaker sales in all three during the fourth quarter. It also lowered its full-year earnings outlook, but CEO Bill Doyle said the company expects demand to pick up as 2009 progresses, since food production and the necessary fertilizer applications can't be delayed indefinitely.
While potash prices stayed stronger over the past months thanks to decreased production, supply has been high for nitrogen and phosphate, leading companies like Terra Industries (NYSE: TRA) and Mosaic to now cut back on production. While nitrogen and phosphate have had constrained margins, PotashCorp expects gross margins for potash to triple compared to 2007. Despite the current volatility, many investors look for a better 2009 for fertilizer stocks like PotashCorp and highly rated Agrium (NYSE: AGU). In PotashCorp's case, nearly 96% of the 4,274 CAPS members rating the firm remain bullish on its prospects to beat the market.
While potash prices stayed stronger over the past months thanks to decreased production, supply has been high for nitrogen and phosphate, leading companies like Terra Industries (NYSE: TRA) and Mosaic to now cut back on production. While nitrogen and phosphate have had constrained margins, PotashCorp expects gross margins for potash to triple compared to 2007. Despite the current volatility, many investors look for a better 2009 for fertilizer stocks like PotashCorp and highly rated Agrium (NYSE: AGU). In PotashCorp's case, nearly 96% of the 4,274 CAPS members rating the firm remain bullish on its prospects to beat the market.
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