Agriculture Fertilizer stocks

Potash, Mosaic Climb on Improved Fertilizer Price Outlook

2011-10-11T16:23:00.001-07:00

Potash Corp. of Saskatchewan Inc., the world’s largest crop-nutrient maker by market value, led fertilizer stocks higher after Credit Suisse Group AG increased its estimates for nutrient prices on “robust” grain demand.

Potash Corp. climbed 6.5 percent to C$49.44 in Toronto, while Plymouth, Minnesota-based Mosaic Co. (MOS), the world’s largest maker of phosphate fertilizer, rose 4.3 percent to $55.77 in New York.

“The outlook for grain prices looks robust,” London-based analyst Lars Kjellberg said today in a note to clients.

Kjellberg expects the price of granular potash, a form of potassium, in the U.S. Midwest to rise to $557 per short ton this year, up from a previous estimate of $546, according to the note. Diammonium phosphate on the U.S. Gulf Coast will rise to $631 a metric ton, more than the previous estimate of $603.

Kjellberg expects higher fertilizer prices to lift industry-wide net profit by 3 percent this year, 17 percent next year and 23 percent in 2013, buoyed by robust grain prices and tight supplies of crop nutrients.

The price of urea, a nitrogen-based fertilizer, in the U.S. cornbelt will rise to $475 a ton this year, up from a previous estimate of $462.

“On the back of the recent market sell off, valuations for the fertilizer sector look highly compelling,” Kjellberg said in the note. “We recommend investors take advantage of the sell off to build a position in the sector.”

Potash Corp. is based in Saskatoon, Saskatchewan.

Ag ETFs Jump As Traders Don’t Wait For Data; MOS, DE, POT Rise

2011-10-11T16:22:00.001-07:00

Agriculture ETFs are hopping Tuesday on renewed optimism that prices are going higher ahead of a pair of government reports that could pump markets up even more.

The broad PowerShares DB Agriculture Fund (DBA) is up 1.4%. Also, the stock-minded Market Vectors Agribusiness ETF (MOO) has gained 1.8% so far.

Grain futures are rallying ahead of two reports by the USDA expected to be made public on Wednesday morning. Analysts are expecting that the department’s estimates on both U.S. crop production and world agricultural supply as well as demand should show a strongly bullish picture across most major markets.

In particular, demand for corn, soybeans, wheat and even gasoline is expected to tighten, prompting greater buying activities from both investment and commercial traders, according to a report by Dow Jones Newswires. The recent sell-off has made prices more attractive and traders said that many investors weren’t waiting for tomorrow’s numbers to put into black and white what’s widely being assumed.

Shares of fertilizer companies CF Industries Holdings (CF) and Mosaic (MOS) are up more than 4% on the day. Also, ag machinery maker Deere & Co. (DE) is ahead by 3%-plus.

Also prompting a more confident mood is a report by Credit Suisse. The firm’s ag analysts raised their fertilizer price outlook based on expectations of robust grain prices and strong demand from emerging markets.

Shares of Potash (POT), the world’s largest fertilizer producer, are up close to 3%.

Stormy Agricultural Headwinds Give Buying Opportunities

2011-10-06T20:21:00.000-07:00

Agriculture companies have been in crashing mode recently. Fertilizers, crop protectors and seeds makers are still an attractive investment for the years to come.

Agri investors with a longer-term view of more than several months know that longer-term trends will dominate (secular trends concerning food scarcity, demographics, climate change, industrialization) and short-term moves provide buying opportunities.

Important issues

Parallel to the situation in 2008, where a sharp sell-off of Agro related stocks and of grain prices was immediately followed by a steady uptrend, you would expect the same to happen in this correction phase.
Low investment in increasing agricultural output has been in place for many years and the catch up trend keeps being interrupted by fears that investments may not pay off. This led to very low inventory levels in 2009 and 2010 and will happen again if current investment in higher yields (by applying fertilizers, crop protectors and especially now new Biotech seeds) is stopped.
The latest USDA report is one reason for the shorter-term oriented farmers to halt investment, with more inventory shortfalls as a consequence in the months ahead.
Why were inventories so much higher all of a sudden in September? No one knows, since no factual explanation was given by the USDA; inventories are counted on estimates for both supply and demand, not on hard facts. Let's face it : who is going to check the contents of grain silos in the Midwest US plains, let alone in the Chinese countryside on a monthly basis? It is possible that October reports will show much lower inventories again, moving in line again with the annual trend.
Pricing for the main crop, corn, is still at almost double the levels seen a year ago, so a slight correction based on fears for demand destruction is not unusual.
Three companies are worthy to buy on dips and provide enough opportunity for the near future.

Company Ticker Price 3M(%) YTD(%) P/ECurrYr P/ENxtYr DivYield
AGRIUM AGU 68.18 -23.6 -25.7 7.3 7.2 0.2
MONSANTO MON 66.25 -10.2 -4.9 20.9 17.7 1.9
MOSAIC MOS 52.18 -24.1 -31.7 8.7 7.8 0.4

Agrium (AGU)
Agrium reported very strong results for Q2 2011 with EPS up by 39% to USD 4.54 and sales up 40% to USD 6.2 bln on higher fertilizer demand and pricing and very good demand for seeds in its retail business.

Mike Wilson, CEO, states: "Crop markets and crop nutrients markets remain tight." (Meaning, that grain inventories are at very low levels and fertilizer demand cannot be met by current supply.)

This was all achieved in a quite difficult quarter for agro chemical makers as plantings had to be delayed due to very bad weather conditions globally (too wet in the West, too dry in the Middle and the East).

Besides being highly profitable with very high free cash flows, Agrium is also an active acquisition seeker, doing deals in Australia and South America lately.

Strong results with more to come in H2 as the South American season starts and China imports even more grains. Agrium is a solid company with less volatile earnings than some of its peers due to the 50% exposure to Retail.

Mosaic (MOS)
Mosaic reported better-than-expected figures for the last quarter of its fiscal year 2010/11, with an EPS of 1.52 per share earned and USD 1.38 anticipated by consensus. Revenue rose by 54% to USD 2.86 bln with USD 2.6 bln expected.

Higher prices and solid demand for fertilizers N (phosphate) and P (potash) were the main reasons here. Prices for phosphate rose by 31% year-over-year (YoY) in this latest quarter; potash prices rose by 20%.

The outlook for the first quarter of the fiscal year 2011/12, remains very upbeat with demand for global fertilizers high, according to CEO James Prokopanko.

The balance sheet is also improving (short term debt - 72%, LT - 39%) rapidly.

Mosaic is in the process of de coupling itself from Cargill, which held a 64% stake in Mosaic.

This gives price pressure to the shares from time to time, but once a stand alone operation, Mosaic can become much more profitable and use its strong balance sheet for more acquisitions.

On the basis of consensus 2011/12 estimates the shares now trade at a PE of 8.7x, falling to 7.8x for the following fiscal year. Cash flow is very high at an estimated USD 6.50 per share for 2011/12 (EPS at USD 5.77 est.) This will allow for more acquisitions (hard to find though, mainly to be found among competitors) or for share buy backs.

In the end, the attractiveness of the underlying assets is what drives the share prices of specialized fertilizer makers like Mosaic, Potash Corp. (POT) and Agrium.

Monsanto (MON)
Monsanto published Q4 numbers for its broken book year 2010/11. These were better than expected at an EPS loss (seeds companies make money in the spring and summer).of 22 cents with minus 27 cents estimated.

Guidance for the next quarter (also typically a weak one) is now raised to an EPS of 10 to 15 cents with 8 cents anticipated. For the fiscal year 2011/12, an EPS of USD 3.34 to 3.44 is now guided for with consensus at USD 3.42. The main reason here is the good demand situation in Latin America. This implies an annual growth rate for EPS of some 16%.
Sales in Q4 reached USD 2.25 bln.
Biotech Seeds prices are set to rise by 10% in 2011/12.
Comments by Hugh Grant, CEO of Monsanto: "It is clear that we have turned a corner and returned to growth mode."
Good numbers with a very confident outlook by management for the year ahead. Valuation is in line with growth at 17x 2012/13 but margin expansion is set to accelerate as new biotech seeds come to market.

Balance sheet strength is assured with high free cash flows generated.

It's a stock for future increased demand trends for agricultural products, food, feed and for bio-based materials and bio fuels.

Fertilizer Stocks a Growth & Value Harvest

2011-10-06T20:19:00.000-07:00

Companies that provide vital soil nutrients will be key investments in the global agricultural megatrend now underway. And now is an especially good time to look at some of the top names as their share prices have come down so hard recently and created some real values.

Doing some stock screening this morning, I found two fertilizers companies that kept popping up. Agrium (NYSE: AGU - News) made it through the Zacks #1 Rank Growth Stocks Screen, which requires more than the top earnings momentum rating reserved for only 220 stocks in a universe of 4,400.

This screen also demands the following growth metrics: a minimum 20% historical growth rate and a minimum 20% projected growth rate.

And AGU joined CF Industries (NYSE: CF - News), also a #1 Rank stock, on the Zacks Growth & Value Screen because both names have very compelling valuations of around 7 times forward earnings.

It should not surprise you that AGU also shows up on the Undervalued Zacks #1 Ranks Stocks Screen.

Won't Recession Plow Ag Stock Estimates?

This is an important question to address before buying any cyclical stock as the valuations on industrial, materials, and energy companies can look really attractive as their prices drop.

But when a recession, or even just a slowdown, is getting priced-in, stock prices get hit bad long before the estimates come down. And so what looks 'cheap' today may be about to get more expensive as the earnings estimate revisions roll in.

This is a theme I have been writing about since the first week of August. I said the downward earnings revisions would come in September and October. So far, they haven't been that bad.

Before I address the global-macro perspective that might help you decide if estimates could hold, or still come down further, let me show you the current consensus estimates that make these two stocks so attractive, along with their price history and recent moves...

AGU: 52wk Low - High 60.15 - 99.14 The stock has been in a slow sideways channel downtrend since the high, but traded back up to $90 in early September and then hit $60 on Tuesday's market sell-off. Now trading above $71 on this recovery rally. The company is scheduled to report earnings on November 2.

The bottom table is a rough sketch of recent analyst action. With about 16 analysts covering AGU, 2 have raised their estimates for the current quarter and for next year within the past 30 days, and 1 analyst upped their targets in the past week. This is one part of the 'intel' that goes into the Zacks Rank along with the magnitude of the revision and accuracy of the analyst.

CF: 52wk Low - High 97.79 - 192.68 Made its surge from $150 to $190 in August when the rest of the market was melting down. Dropped below $120 this week and now trading $140. Earnings are expected Nov 1.

CF also has a couple of recent upward revisions. But you may also notice that next year's consensus reflects a drop in EPS. If the high estimates near $24 are correct, this stock could indeed be an extreme value here. Time and further revisions will tell.

Where's the Big Guy?

You didn't think I was going to write about fertilizer stocks and leave out Potash of Saskatchewan (NYSE: POT - News)? The behemoth of the essential soil nutrient it is named for has also had some recent earnings estimate revisions which basically balance out as the current quarter was taken down and next quarter raised.

Based on consensus estimates, POT looks poised to grow EPS at 16% next year after hitting 85% growth this year. 2011 and 2012 projected earnings of $3.79 and $4.42, respectively, combine to create a forward P/E multiple of 12 times for this Zacks #2 Rank (buy) stock. POT is due to report on October 27.

Finally we should mention Mosaic (NYSE: MOS - News) as their outlook has softened. Since they missed their EPS number for the most recent quarter when they reported last week, most analysts (12 of 14) have lowered estimates for the current year while 4 vs. 7 have raised vs. lowered their outlook for next year. This mixed bag knocked the stock down to a Zacks #3 Rank (hold) on September 27.

The Global Ag Megatrend

I have written often about the global megatrend of food demand, even calling this the 'decade of food' as the world population tops 7 billion on its way to a projected 9 billion by 2050.

It's not just population growth driving agricultural trends. Emerging economies have billions of people who also aspire to raise their food choices along with their living standards. More meat-based diets mean more grain than ever will be demanded.

Okay, so that's the big secular trend driving things for the next several years. But what about the next six months, especially if recession becomes reality? According analysts at Macquarie Equities Research, generally 'the demand for agriculture commodities has been immune to economic downturns with lower income elasticities of demand compared to either industrial metals or energy.'

My outlook is that there will be no recession and that with these important stocks so cheap, one or two should be considered for the commodity portion of one's portfolio. And this isn't about 'buy and hold' for years either.

With the excellent trading swings the fertilizer stocks tend to make, their resurgent bull markets should offer some good opportunities over the next several years to capture 10-30% gains every few months.

Don't Dismiss Fertilizer

2011-10-06T20:16:00.000-07:00

With the economy pulling back, commodities are usually first on the chopping block. As the basic elements of society, any concerns that economic growth is contracting leads the market to believe that demand for commodities - copper, iron ore and oil - will decline. As a result, commodity prices retreat quickly, which in turn causes the market to sell shares in the companies that make or sell the underlying commodities.

Fundamentally StrongNo commodities have been spared; not even fertilizer. Ironically, fertilizers prices continue to remain strong and have not pulled back as much as other commodities. However, prices of agricultural commodities, like corn and wheat, have slipped a little, and investors use those commodity prices to extrapolate future fertilizer demand. Lower grain prices suggests that farmer profits will decline; lower farming profits suggests that farmers will buy less fertilizer in order to reduce expenses. That's the scenario that occurred in 2008, and indeed sent fertilizer prices spiraling downward, and taking the valuations of the company's that make fertilizer along for the ride.

There's no question that another recession will depress shares further. But fertilizer helps increase food production, the most essential need for society. The long-term demand for food continues to remain robust, thus the long-term outlook for fertilizer remains strong.

Price Vs. ValueFertilizer shares have been getting hammered in the past month, and valuations are beginning to look interesting again. Prices are still off from 2008 and 2009 lows, but investors should keep a close watch on this industry, as it offers the greatest potential going forward. Nitrogen producer CF Industries (NYSE:CF) was trading for as high as $192 a few months ago, and shares have since pulled back to $120 trading at 8.5 times current earnings. Phosphate and potash giant Mosaic (NYSE:MOS) has pulled back from nearly $90 to $46 today. Shares fell over 3% after the company announced earnings as high sulfur costs hurt margins. Mosaic has a pristine balance sheet with over $3 billion in net cash against a market cap of $21 billion.

For those investors who want a basket bet, Market Vectors Agribusiness ETF (NYSE:MOO) has holdings in all of the major fertilizer stocks; along with interests in other high quality names like farm equipment giant Deere (NYSE:DE) and seed company Monsanto (NYSE:MON). MOO offers greater diversity which helps on the downside, but that also means if a name like CF or Mosaic begin to climb higher again, MOO will likely under perform.

In any regard, the long-term outlook for agriculture and fertilizer remains as strong as ever. There are always going to be pullbacks when the economy stutters, or investors get nervous. However, as long as investors buy in at the right price, the upside value will take care of itself. (For additional reading, also see Water: The Ultimate Commodity.)

Is The Commodities Bull Market Signaling A Pause?

2011-03-24T08:25:00.000-07:00

In recent weeks it was reported that Bill Gross, head of Pimco, the largest bond shop in the world sold all Treasuries in the massive Pimco total return fund. Pimco is as close as one can get to the Treasury and the Federal Reserve. Former Fed Chairman Alan Greenspan became a special advisor to Pimco and being the largest bond shop in the world, Pimco is instrumental in ensuring funding for Uncle Sam and was also instrumental in the bailouts of Freddie and Fannie.

However, Pimco and Gross are notoriously flaky in their public statements and behavior. In the wake of the financial crisis, it was Pimco who clamored for increased government spending and for a bailout for Freddie and Fannie. Pimco invested heavily in those higher yielding bonds on the basis that the government would bail out bondholders. Only a few years later, we have Gross at the other end of the spectrum, noting the obvious about our deficits and national debt.

So we should all take Gross’ comments at face value and dump our bonds?

The picture shows TLT (NYSE:TLT) and the CCI (Commodities). Interesting how Bonds have put in another bottom and have continued their pattern of higher lows. We also note the negative correlation between Bonds and Commodities. Its not a perfect correlation but its an important indicator. The fact that Bonds have put in another bottom and Commodities are well above their long-term moving averages, is reason why we are near-term cautious on Commodities.

The bottom line is one has to study the charts, sentiment indicators and macroeconomic factors rather than listen to so-called experts like Bill Gross, Warren Buffet or any Federal Reserve member. For all we know, Gross could have sold his holdings six months ago and went long days after his public statement.

10 Stocks Hitting 52-Week Lows As Their Share Prices Disappear Like Houdini

2011-03-24T08:23:00.000-07:00

Here are 10 stocks that hit their lowest price in the past 12 months. Note that this list excludes all stocks with a market capitalization less than $300 million:

Cbeyond, Inc. (NASDAQ:CBEY): Up 1.03% to $11.77. Cbeyond, Inc. offers telecommunications services to small businesses. The Company offers local and long distance telephone services, T-1 Internet access, and Internet-based applications.

Cree Inc. (NASDAQ:CREE): Down 12.45% to $42.90. Cree, Inc. develops and manufactures semiconductor materials and electronic devices made from silicon carbide (SiC). The Company uses proprietary technology to make enabling compound semiconductors such as blue and green light emitting diodes, SiC crystals used in the production of unique gemstones, and SiC wafers that are sold for device production and research.

Dolby Laboratories Inc. (NYSE:DLB): Up 1.14% to $48.09. Dolby Laboratories Inc. develops audio signal processing systems for the motion picture, broadcasting, and music recording industries, as well as the consumer market.

General Motors Corporation (NYSE:GM): Up 1.37% to $31.16. Ford’s (NYSE:F) major U.S. competitor, General Motors Co. manufactures and markets new cars and trucks. The Company offers features for special needs drivers, OnStar vehicle protection, service, parts, accessories, maintenance, XM satellite radio, features for commercial owners, and more. General Motors offers its vehicles and services worldwide.

hhgregg, Inc. (NYSE:HGG): Down 0.38% to $13.27. hhgregg, Inc. retails video products, brand name appliances, audio products and accessories.
Micromet, Inc. (NASDAQ:MITI): Up 4.77% to $5.05. Micromet, Inc. is a biotechnology company. The Company develops novel antibody-based drugs for the treatment of cancer, inflammation and autoimmune diseases.

Nektar Therapeutics (NASDAQ:NKTR): Up 0.7% to $8.66. Nektar Therapeutics is a clinical-stage biopharmaceutical company which develops a pipeline of drug candidates that utilize company platforms. The Company’s product pipeline is comprised of early to late stage drug candidates across a number of therapeutic areas including oncology, pain, anti-infectives, anti-viral and immunology.

PAETEC Holding Corp. (NASDAQ:PAET): Down 3.15% to $3.07. PAETEC Holding Corporation offers communications services to businesses. The Company offers medium and large businesses in metropolitan areas of the United States local and long distance voice services, data services, and Internet services.

RadioShack Corp. (NYSE:RSH): Up 0.43% to $14.01. RadioShack Corporation operates a chain of retail consumer electronics goods and services stores located throughout the United States and Mexico, along with wireless phone kiosks in the US, and dealer outlets worldwide. The Company offers consumers wireless phone and other electronic products and services from national brands and exclusive private brands and wireless carriers.

Yongye International, Inc. (NASDAQ:YONG): Down 10.09% to $5.70. Yongye International, Inc. researches, develops, produces and sells fulvic acid based liquids and powder nutrient compounds used in the agriculture industry. The Company’s product acts as a transport agent helping plant cells absorb the minerals and elements for growth.

18 Commodity Stocks Jim Rogers Might Consider Now

2011-03-24T08:22:00.000-07:00

Commodities permabull Jim Rogers recently said he foresees $150/per barrel oil. Then there's his well-known distaste for the U.S. dollar and his love off all things agriculture. With that in mind, we decided to look at some names in the commodity space that we think Jim Rogers would consider. Here’s what we came up with, plus some commentary on each.

The Mosaic Company (MOS) With a market capitalization just over $34 billion, this giant of the fertilizer world is prepared to feed to the soil that grows the world’s agricultural diet. Why would Rogers like it? It vertically integrates the production of two of the three core inputs, potash and phosphate, that go into its fertilizer product. Despite a very bullish run in the past year, as recently as late January, RBC Capital Markets reiterated its outperform rating for the company. However, we believe shares are overvalued on a discounted cash flow basis, and investors would be advised to add a position on a pullback.

CNOOC Limited (CEO): CNOOC has averaged a 26.3% return on equity over the last five operating years and the company sports a PEG ratio around 0.6. Shares yield 2.4% with a modest 35% payout ratio. The company maintains four areas of production in China at Bohai Bay, Western South China Sea, Eastern South China Sea and the East China Sea. Further, the company also maintains offshore production in Indonesia. Upstream assets operate in Nigeria, Australia and throughout China. At year-end 2009, the company's net proved reserves totaled 2.68 billion barrels of oil equivalent with net production of 624,000 per diem. CNOOC subsidiaries include CNOOC China Limited, CNOOC International Limited, China Offshore Oil of Singapore. CNOOC Finance which provide ancillary regional services to the parent company.

CF Industries Holdings Inc. (CF) CF Holdings is a smaller player with a regionally concentrated market in the central United States. CF is another fertilizer name that has steady growth prospects for the long term. Its 5-year projected EPS are 8.5%. it should be noted that it, like others in the sector, the company has experienced a marked run up in its stock price recently.

Chesapeake Energy Corporation (CHK): Chesapeake Energy Corporation focuses on developing conventional and unconventional natural gas reserves onshore in the U.S. Carl Icahn was also a buyer during the most recent reporting period. The company sports a beta of 1.33, a trailing P/E of 13.35, and a forward P/E of 11.22. Profit and operating margins currently stand at 18.94% and 28.71%. Recently, BHP Billiton (BHP) paid $4.75 billion for Chesapeake Energy Corporation’s gas assets in the Fayetteville shale formation

Gazprom (OGZPY.PK) Opportunely seizing on the theme of Mideast instability, Alexey Miller, Chairman of the Gazprom Management Committee stated “The situation emerging in foreign markets makes the South Stream project even more essential, desired and ever timely.” The Russian name that's synonymous with energy, Gazprom, has just joined forces with another: Lukoil (LUKOY.PK). The companies will cooperate in natural gas extraction and delivery from the Bolshekhetskaya Depression and the Northern Caspian Sea. Additionally, the company is making major progress on its Sakhalin facilities. Broadly speaking, Gazprom is a direct buy into Russian oil and gas at this moment.

Monsanto (MON): Monsanto, with a market cap of $36.41B, is one of the largest agricultural product companies in the world. The firm offers chemicals and genetically modified seeds to boost farm production across a wide variety of crops. Although the stock is currently trading at a somewhat expensive P/E ratio of 32.95, the company has top-notch profitability, with an operating margin of 16.01%. The company also has a ROE of 11.28%, and offers a $1.12 (1.70%) dividend.

In addition to rising food prices, there are a few factors that appear to be in Monsanto’s favor. First of all, Monsanto has a global presence, and should benefit from increased food demand in emerging markets, especially Latin America, where Monsanto has already experienced significant growth. Second, low investment in agriculture over the last decade means that products like Monsanto’s will become more important to improve farm productivity. Finally, Monsanto has always been at the forefront of agricultural breakthroughs, and currently has nine products in the developmental pipeline.

Exxon (XOM): With a market cap of just over $400B, Exxon is the largest company in the world. Trading at a P/E of 13, the energy giant pays a $1.76 (2.10%) dividend. Exxon is undoubtedly a leader in the energy business, and operates at an above-average 12.01% operating margin. Over the last 12 months, XOM also has an outstanding 23.43% ROE, better than 90% of the companies in the industry. If the Fed decides to withdraw QE2, we think Exxon will survive, as we wrote here.

Potash (POT): Another agricultural giant, Potash has a market cap of $46.57B. Smart money investors such as David Einhorn like it. The stock is trading at a 27.54 P/E ratio, and offers a $0.29 (0.50%) dividend. Over the last year, POT has an unbelievable 38.03% operating margin that is among the best in the industry, with a 27.28% ROE.

Primarily a fertilizer producer, Potash should benefit from many of the same factors as MON and other agricultural product companies. That is to say, reduced farm productivity and increased food demand in developing countries will help boost profits moving forward. Goldman Sachs also just upgraded its rating on POT to “buy”, saying that Potash may have the most favorable demand prospects among the fertilizer group.

Agrium (AGU): Agrium, which offers agricultural products and services, has a market cap of $13.96B and pays a small dividend of $0.11 (0.10%). Trading at a 19.53 P/E ratio, the company has a 9.32% operating margin and 14.68% ROE. Agrium also has a low valuation in terms of forward PEG, at only .6. The company is coming off of a record fourth quarter in 2010, when its quarterly earnings quadrupled those of Q4 in 2009. Additionally, Agrium has been active in taking over smaller companies, which should help it take advantage of rising food prices in the future. Agrium will benefit from the same factors mentioned for other chemical companies, namely increased global demand for food.

ATP Oil and Gas (ATPG): ATPG is an offshore oil and gas production company, with a market cap of $950.58M. The company was hit hard by the Gulf drilling moratorium, and as a result had negative earnings last year. Nonetheless, ATPG was just awarded the third deepwater drilling permit in the Gulf of Mexico, and will resume drilling this week at its well 90 miles south of Louisiana. ATP owns 100% of the well, and will use its ATP Titan drilling platform for drilling. Additionally, despite the negative earnings, the company had positive EBITDA of $208.44M over the last year. ATP has also made a push into Israel for drilling opportunities due to the slow permitting in the Gulf of Mexico, and could benefit from this diversification. Click here to read more on ATPG and the important permitting updates which will continue to help this offshore driller.

Chevron (CVX): Chevron is another large, diversified oil and gas company. With a market cap of $210.48B, the stock pays a $2.88 (2.90%) yearly dividend and is trading at an 11.06 P/E ratio. The company has strong earnings, with a 13.51% operating margin, and also has an impressive 19.29% ROE over the last year. The company currently has more than enough cash to cover its total debt, and has experienced solid growth lately. Like Exxon, Chevron made a big move into natural gas with its multi-billion dollar acquisition of Atlas Energy. Finally, the company has exposure to many potential high growth opportunities, both in emerging markets and within alternative energy.

MarketVectors Agribusiness ETF (MOO): This ETF is a good way to buy exposure into the agricultural space that diversifies your company-by-company allocation, as it is strongly geared toward the big names of the industry. Its top holdings include, in order, Monsanto, Potash, Mosaic, Deere & Co. and Singapore-traded Wilmar International. Indicative of the interest in the sector generally, the daily volume of MOO shares has spiked significantly over the past month and half.

Deere (DE): Deere, maker of tractors and other agricultural and forestry products, has a market cap of $38.57B, and is trading at an 18.40 P/E multiple. The company offers a $1.40 (1.60%) dividend and has shown a ROE of 37.03% over the last year.

As a cyclical stock, continued economic recovery would only boost DE, even after the strong recovery that the stock has already shown. If more good news about the economy keeps piling up, the stock should continue its rise. On March 10th, Deere announced major new investment in Russia, one of the four main emerging market nations. The company could see major growth through this investment, as Russia is a huge country with tons of land available for farming and forestry. Finally, as with other agriculture stocks, DE should benefit from increasing food prices, since higher farming margins will more easily allow farmers to invest in new machinery.

Syngenta Corp. (SYT) With over 4 billion dollars of cash on hand and a one-year forward EPS projection of nearly 25% Syngenta is a solid name. This Swiss company competes in two major agricultural arenas: Crop protection and seed production. It is an underdog amongst the more established genetically-modified seed producers, Monsanto and DuPont (DD). It may well be this underdog mentality that drives it to continue its aggressive investment in R&D and succeed in closing that gap and sating global appetites.

Archer-Daniels Midland Company (ADM): Archer-Daniels' income and revenue have jumped nearly a third YoY, with a 5-year EPS projection of a very steady and respectable 8%. The company is heavily involved in ethanol so investors strongly committed to this play or those simply looking to add a bit of ethanol exposure to their books without direct commodities investments might be attracted to this venerable name.

Brasil Foods S.A. (BRF) Brasil Foods distributes thousands of products to over 100 countries. It is a leader amongst Brazilian food companies. To the many consumers of its frozen food products it is more commonly known by its public-facing name of Perdigao. With a middle class constituting a majority of the population for the first time in Brazil, it bodes well for demand of the pre-made meals on offer.

New Agribusiness ETF's Small-Cap Appeal

2011-03-24T08:21:00.000-07:00

NEW YORK (TheStreet) - In light of the rampant run up in food prices, the agricultural industry has been a closely watched and sought-after slice of the global marketplace.

Investors looking for ways to satisfy their appetite for food and the farming industry have turned to a variety of ETF products which are designed to track the performance of either crop futures contracts or agricultural equities such as Deere and Potash of Saskatchewan.

Interestingly, there is currently a large number of futures-based ETFs and ETNs which allow investors to target the industry from a variety of perspectives. For instance, investors can track individual crops such as sugar, livestock, and corn through products such as the iPath Dow Jones UBS Sugar Subindex Total Return ETN, the iPath Dow Jones UBS Livestock Subindex Total Return ETN or the Teucrium Corn ETF.

Meanwhile, more conservative individuals looking to tap into agriculture futures can turn to the broadly diversified PowerShares DB Agriculture Fund to get their fix.

When it comes to tracking agriculture-related equities, however, the number of available options has traditionally been limited. Market Vectors Agribusiness ETF has long been my fund of choice for this region of the market.

Other funds such as the PowerShares Global Agriculture Portfolio exist. However, they haven't generated the same level of interest and therefore could run the risk of facing illiquidity issues down the road.

This week, IndexIQ unveiled a new product which takes an alternative approach to accessing companies heavily involved in the farming industry: the IQ Global Agribusiness Small Cap ETF. On the fund's opening day it appears to have generated some respectable interest, changing hands over 200,000 times.

As its name implies, CROP is designed to expose investors to the global agribusiness industry through a small- and mid-cap lens. By exercising this unique investing strategy, CROP provides investors with a noticeably different take on the industry.

For one, CROP's sector breakdown varies considerably from its large cap cousin. MOO's index is heavily weighted towards agricultural chemicals companies which, together, account for nearly half of the fund's index. This same aspect of the agriculture industry accounts for only 7% of CROP's index.

Rather than focusing on chemicals, the new fund is heavily positioned to benefit from companies involved in supplies and logistics, and machinery. Together, these two slices represent half of the fund's portfolio.

CROP's index is slightly less top heavy than MOO, with 55% of its portfolio concentrated in its top 10 positions. Within MOO, these large holdings represent two thirds of its index. What is concerning, however, is the fact that CROP's largest position, Viterra, accounts for nearly 10% of the portfolio alone. Small- and mid-caps tend to move more dramatically from day to day and focusing too heavily on a single holding may cause the fund to behave erratically.

Other top holdings include Tractor Supply, Smithfield Foods, Nutreco, and Ebro Foods.

Given CROP's dedicated exposure to such a small slice of the agriculture industry, it is not surprising that the fund's expense ratio, 0.75%, is higher than MOO's which stands at 0.59%. Increased risks and higher costs are two factors that must be taken into account before diving into this new fund.

In the end, IndexIQ could have a hit on its hands with CROP in the event that food prices remain on the minds of investors. Despite its strong start, it will be important to keep an eye on the fund's liquidity over the near future to ensure that interest does not wane.

5 Agriculture Stocks With Which to Fertilize a Profitable Portfolio

2011-03-24T08:20:00.000-07:00

The world is seeing a rapidly developing middle class in countries such as Brazil, India, and China, and their demand for quality food is heading north. Global population, especially in emerging markets, continues to rise. A gain in wealth in these markets has fueled a demand for more and higher quality food. There is a need for an acre of land to yield more produce. Prices of soybeans, wheat, and corn are rising, with corn prices up 86% from a year ago. Major fertilizers like phosphate, sulfur and ammonia have been rising in price since mid-2010.

CF Industries (CF) is a North American manufacturer and distributor of agricultural fertilizers, based in Deerfield, Illinois. Its IPO came in 2005. Its current P/E is at 23.44, with a dividend yield of 0.40 (0.30%), and is trading at $125.19. Investors should anticipate falling nitrogen prices to weigh on stock prices for CF industries, as well as other fertilizer companies.

Potash Corporation of Saskatchewan (POT) is the world's largest potash producer and the second and third largest producers of nitrogen and phosphate, three primary crop nutrients used to produce fertilizer. The world’s largest consumers of these products are China, the United States, Brazil and India. Their current P/E ratio is 28.11, with a dividend yield of 0.29 (0.50%), and is trading at $55.66. Goldman Sachs has upgraded Potash Corporation of Saskatchewan Inc to buy from neutral. Potash is the 6th fastest-growing stock in this segment of the market. Its longer-term annual EPS growth is expected to be 20.9%. This number is based on the average estimate of three brokerage analysts.

Agrium Inc. (AGU) is a major retail supplier of agricultural products and service in North and South America, a leading global wholesale producer and marketer of all three major agricultural nutrients and the premier supplier of specialty fertilizers in North America through its Advanced Technologies business unit. Agrium’s strategy is to grow the value chain through acquisition, incremental expansion of its existing operations and through the development, commercialization and marketing of new products and international opportunities. Its current P/E is 19.49, with a dividend yield of 0.11 (0.10%), and is currently trading at $88.11. Last month Agrium reported 4th quarter net earnings of $158 million as compared to $30 million for the same period last year.

Mosaic Company (MOS) launched in October of 2004, and was formed by a merger between the crop nutrition division of Cargill, Inc. and IMC Global Inc. Mosaic is currently the world’s largest producer of phosphate and the second-largest producer of potash. Its current P/E ratio is 17.77, with a dividend yield of 0.20 (0.30%), and is trading at $77.13.

Intrepid Potash, Inc. (IPI) is based in Denver, Colorado, is the largest producer of potassium chloride, also known as muriate of potash, in the United States. It owns three mines, all in the Western U.S., near the cities of Carlsbad, New Mexico, Moab, Utah, and Wendover, Utah. Its current P/E ratio is 55.85, and is trading at $33.51. Intrepid is the 10th fastest-growing stock in this segment of the market. Its longer-term annual EPS growth is expected to be 16.0%. This number is based on the average estimate of two brokerage analysts.

New ETF For The Small Guys In Agribusiness

2011-03-24T08:19:00.000-07:00

The IQ Global Agribusiness Small Cap ETF began trading this week; an exchange traded fund (ETF) that represents the smaller companies involved in agribusiness. Neil Anderson for Mutual Fund Wire reports that Adam Patti, CEO of Index IQ, describes the timing of the launch in lock step with volatile food prices.[ Commodities Get New ETF Players. ]

February saw the largest jump yet in food prices, up 3.9%, the largest since 1974. The changing supply and demand food chain represents the opportunity for the small cap companies, specializing in agribusiness, to generate significant growth.[ New ETFs For Specific Areas Of The Market. ] Factors such as changing dietary demands, global supply shortages and growing populations are encouraging food prices to rise.

CROP joins other agriculture related ETFs including:

Market Vectors Agribusiness (NYSEArca:MOO)
PowerShares DB Agriculture (NYSEArca: DBA )

Wall Street is Loving These Basic Materials Stocks

2011-03-24T08:18:00.001-07:00

Despite a horrendous new home sales report, sellers have been unable to keep the market down as Basic Materials (NYSE:XLB) have been catching a nice bid. Freeport-McMoRan (NYSE:FCX) CEO Richard Adkerson said the company is in a position to make acquisitions. The news clearly has a lot of investors making bets on which companies will get in the deal game.

Here are some stocks you may want to add to your investing or trading watch list:

Silver Wheaton Corp. (NYSE:SLW): The stock has traded 10.65 million shares, and up 4.8%. Silver Wheaton Corporation purchases and sells by-product silver from operating mines. The Company has long term contracts to purchase all or a portion of the silver production from mines in Mexico, Sweden, Peru, Greece and the United States.

United States Steel Corporation (NYSE:X): The stock has traded 6.3 million shares, and is up 1.7%. United States Steel Corporation is an integrated steel producer with production operations in North America and Europe. The Company’s operations include coke production in both North America and Europe and iron ore pellets in North America, transportation services (railroad and barge operations), real estate operations, and engineering and consulting services in North America.

BHP Billiton Limited (NYSE:BHP): The stock has traded 3 million shares, and is up 1.4%. BHP Billiton Limited is an international resources company. The Company’s principal business lines are mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel and copper concentrate, as well as petroleum exploration, production, and refining.

Vale (NYSE:VALE): The stock has traded 13 million shares, and is up 1.8%. Vale SA produces and sells iron ore, pellets, manganese, alloys, gold, nickel, copper, kaolin, bauxite, alumina, aluminum, and potash. The Company is based in Brazil, where it owns and operates railroads and maritime terminals.

Rio Tinto (NYSE:RIO): The stock has traded 2.35 million shares, and is up 2.39%. Rio Tinto PLC is an international mining company. The Company has interests in mining for aluminum, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock, diamonds, talc and zircon. Rio Tinto’s various mining operations are located in Australia, New Zealand, South Africa, the United States, South America, Europe, and Indonesia.

ArcelorMittal (NYSE:MT): The stock has traded 2.25 million shares, and is up 1%. ArcelorMittal produces steel. The Company manufactures cold rolled, electrogalvanized and coated steels, slabs, special quality bars, and wire rods. Arcelor Mittal has steel making operations in Europe, the Americas, Asia, and Africa.

Barrick Gold Corporation (NYSE:ABX): The stock has traded 6.4 million shares, and is up 3%. Barrick Gold Corporation is an international gold company with operating mines and development projects in the United States, Canada, South America, Australia, and Africa.

Newmont Mining Corporation (NYSE:NEM): The stock has traded 7.15 million shares, and is up 1.4%. Newmont Mining Corporation acquires, explores, and develops mineral properties. The Company produces gold from operations in the United States, Australia, Peru, Indonesia, Ghana, Canada, New Zealand and Mexico. Newmont also mines and processes copper in Indonesia.

Cliffs Natural Resources Inc (NYSE:CLF): The stock has traded 2.5 million shares, and is up 3%. Cliffs Natural Resources Inc. is a diversified mining and natural resources company. The Company mines for iron ore and coal in locations across North America, South America, and Australia.

Goldcorp Inc. (NYSE:GG): The stock has traded 4.45 million shares, and is up 3%. Goldcorp, Inc. is a North American gold producer. The Company has gold mining operations in the United States, Canada, Mexico, Brazil, Argentina, and Australia. Goldcorp owns the Red Lake mine in Ontario.

AngloGold Ashanti Limited (NYSE:AU): The stock has traded 1 million shares, and is up 2.8%. AngloGold Ashanti Limited is a holding company for a group of companies which explore for and mine gold internationally. The Group has operations in the Vaal River and West Witwatersrand areas of South Africa as well as Namibia, Mali, Brazil, Argentina, Australia, Tanzania and the United States.

U.S. Gold Corporation (NYSE:UXG): The stock has traded 2.8 million shares, and is up 9.5%. US Gold Corporation explores for, develops, produces, and sells gold. The Company operates primarily in Nevada.

Southern Copper Corporation (NYSE:SCCO): The stock has traded 2.7 million shares, and is up 2.7%. Southern Copper Corporation conducts mining operations in Peru and Mexico. The Company owns and operates open pit mines and metallurgical complexes that produce copper, molybdenum, zinc, and precious metals.

China Shen Zhou Mining & Resources Inc. (AMEX:SHZ): The stock has traded 7.5 million shares, and is up 12%. China Shen Zhou Mining & Resources Inc. acquires, explores, extracts, and develops mining properties in the inner Mongolia region of the People’s Republic of China. The Company mines for minerals that include fluorite, copper, zinc, and lead.

Potash Corp./Saskatchewan (NYSE:POT): The stock has traded 4.2 million shares, and is up 1.6%. Potash Corporation of Saskatchewan Inc. produces potash, phosphate, and nitrogen to the agricultural and industrial industries worldwide. The Company conducts operations in Canada, Chile, the United States, Brazil, and Trinidad.

The Mosaic Company (NYSE:MOS): The stock has traded 2.1 million shares, and is up 1.7%. The Mosaic Company produces and distributes crop nutrients to the agricultural communities located in North America and other countries. The Company’s principal products include concentrated phosphates, and potash.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX): The stock has traded 19.6 million shares, and is up 5.1%. Freeport-McMoRan Copper & Gold Inc., through its subsidiary, is a copper, gold and molybdenum mining company. The Company primarily mines for copper and owns mining interests in Chile and Indonesia. Freeport-McMoRan Copper & Gold also, through a subsidiary, is involved in smelting and refining of copper concentrates.

Northern Dynasty Minerals Ltd. (AMEX:NAK): The stock has traded 1 million shares, and is up 3%. Northern Dynasty Minerals Ltd. explores for gold, copper, and molybdenum in Alaska.

Silvercorp Metals Inc . (NYSE:SVM): The stock has traded 2.45 million shares, and is up 5.8%. Silvercorp Metals Inc. acquires, explores, and develops mineral properties in China. The Company is developing its Ying Silver project located in the People’s Republic of China.

NovaGold Resources Inc. (AMEX:NG): The stock has traded 2.35 million shares, and is up 3.5%. NovaGold Resources Inc. is a mineral exploration company. The Company, through its subsidiaries, explores and develops mineral properties in North America. NovaGold primarily focuses on gold properties, which may include copper, silver and zinc resources.

If you’re looking for a low risk way to invest in or trade the related Industrial and Capital Goods sector, take a look at Wall St. Cheat Sheet’s feature “Industrial and Capital Goods ETF: The Top Exchange Traded Fund for Your Investing Watchlist“.

China As America’s Banker, America As China’s Farmer: Malthus Was Right

2011-03-24T08:17:00.000-07:00

China’s agricultural problems, where a quickly growing and increasingly affluent population is putting pressure on food supplies, will eventually spill over to the U.S., says environmental and agriculture guru Lester Brown. With the U.S. the world’s largest grain producer and China the largest holder of U.S. debt, Lester asks, “with China now America’s banker, will America become China’s farmer?”

Thomas Malthus sparked one of the most heated debates in economics back in 1798 when he anonymously published his Essay on the Principle of Population in which he famously postulated that as population growth turned exponential and outstripped agricultural production, which grew at a linear rate, famine and poverty would lead to civil strife and war. In a teleconference on Wednesday, Lester Brown, head of the Earth Policy institute, echoes Malthus’ fears noting that the British economist “was right in the sense that we are having trouble feeding the world population.” Apocalyptically, he adds that he sees he sees “no prospect that we will be able to face rising demand.” (Read On The Verge Of A Global Food Crisis).

China, Brown explains, will put incredible strains on global grain markets and will force the American consumer to forget about cheap food. With news that China had quietly entered the U.S. grain market to buy corn in the last couple of weeks, a nightmare scenario is brewing up for both countries. The U.S., with grain production at around 400 million tons a year, is the world’s breadbasket, according to Brown, exporting more than Canada, Argentina, and Australia together, the next three largest exporters. China, with over $900 million in Treasuries, is the U.S.’ banker.

“Like it or not, we will have to share our grain with China,” says Brown, “which means the U.S. consumer will have to compete with a population of 1.3 billion with fast-growing incomes that is quickly moving up the food chain, demanding grain intensive products.” In the past the U.S. could resort to restricting exports, as Russia and Argentina did in the ’07 – ’08 food crisis, this is not an option now. China’s massive holdings of U.S. debt and its continued financing of an exploding deficit makes it politically impossible to not cooperate. “In a country that has been the world’s breadbasket for more than half a century, a country that has never known food shortages or runaway food prices, the world is about to change.” That country is the U.S.

Brown expects Chinese wheat imports from the U.S. will be close to 10 million tons, most of it corn. Those could rise to 20 million tons by the end of the decade. “[China] would’ve been in the market for more hadn’t it been for record grain and soy bean prices, but if they come in too big, they will rock the market,” explains the environmentalist. (Read Why World Food Prices Will Keep Climbing).

Food Price Index - UN FAO
Global food prices have been testing all-time highs since last December, according to data from the UN’s Food and Agriculture Organization, with eight consecutive months of increases. Stemming from bad policies and rampant population growth, the problem can’t be pinned down to any one nation. But China, with the largest population, is definitely a game changer. (Read Global Food Prices Hit New All Time High After 8 Consecutive Months Of Gains).

China’s agricultural policies have restructured the whole of the Western hemisphere’s agriculture. In the ‘80s, Chinese leadership was composed of survivors of the Great Famine of ’58 to ’61, where 20 to 43 million are estimated to have died. The psychological scars, notes Brown, led to an “all out effort in agriculture, including research to raise yields, investment incentives, and other things.” In a desperate attempt to become self-sufficient in grain, one of their policies was the abandonment of the soy bean. “In 1995 China produced and consumer 14 million tons of soy beans, by 2010 they continued to produce 14 million but consumed 70 million, making them heavily dependent on soy bean imports.”

Soy bean is now the most common crop from Canada to Argentina, explains Brown. The top three exporters, the U.S., Brazil, and Argentina, responsible for 80% of the world’s harvest and 90% of exports, essentially feed China, which imports 60% of global stock. “The U.S. has more land dedicated to soy beans than grains, Brazil has more land for soy beans than for all its grain products combined, and Argentina has doubled the amount of land for soy beans than for all grain products combined.”

While soy bean, intended to feed China, comes to dominate Western crop-land, at the expense of grains, China’s own grain production has begun to face problems of its own. Along with the U.S., China is the world’s greatest grain producer, each with about 400 million tons a year, according to Brown. Industrialization and modernization have had their toll, as agricultural production was moved to the wind-erosion prone North Western regions of the country, leading to falling yields. Urbanization has drained young workers from rural areas, sending rural wages skyrocketing and forcing the abandonment of smaller plots with no scale. Rampant growth in automobile demand, with China adding 14 million cars to its fleets in ’09, 18 million in ’10, and an expected 20 million in ’11, means paving millions of square miles.

Arguably China’s biggest problem, though, are over pumped aquifers. With four-fifths of its grain coming from irrigated fields (compared with one-fifth in the U.S.), the over pumping of China’s large North China plain fossil aquifer means it has been feeding approximately 130 million people more than it should with those supplies, it has inflated its capacity. “This will lead to catastrophic consequences for future generations, as inflated grain capacity is by definition a short-term solution,” says Brown, noting that 18 countries, including all four of the world’s largest grain producers, are depleting their aquifers.

Another major problem hitting the global food situation is the use of grain to make ethanol, according to Brown. “Malthus never anticipated that,” he says. “The price of grain is now tied to the price of oil, this is a situation we have never faced before,” notes Brown, “and as oil prices continue to rise, hitting $150 or maybe $200 a barrel according to some estimates, means that if producing ethanol is more profitable, people will turn to that.” Therefore, the simple equation is that as oil prices go up, ethanol prices go up, and so do grain prices, putting further strains on the global economy. Brown predicts ethanol production will face regulatory challenges in the near future in tandem with a substantial tightening of global food markets.

Brown puts the finger on what will become one of the biggest challenges facing the world. Spiking global food prices have been part of the catalyst behind recent unrest in the Middle East and North Africa, as real wages fall in the face of rising food-price inflation. With approximately one sixth of the world in “chronic hunger” according to the U.N and global population expected to hit 7 billion by the end 2011, it would be wise to pay more attention to people like Brown.

Monsanto Company (MON): Zacks Rank Buy

2011-03-24T08:11:00.000-07:00

The USDA recently raised its forecasts for planted corn acreage this year. This is great news for agricultural biotech company Monsanto (NYSE: MON - News).

Earnings estimates have been rising to reflect this increase, sending the stock to a Zacks #2 Rank (Buy).

The company also generates strong cash flows, which it has used to steadily raise its dividend. It currently yields 1.6%.

Company Description

Monsanto provides technology-based solutions and agricultural products to improve farm productivity and food quality. It is headquartered in St. Louis, Missouri and has a market cap of $37.3 billion.

First Quarter Results

Monsanto reported first quarter earnings per share of $0.02, 1 penny ahead of the Zacks Consensus Estimate. This was up from a $0.02 per share loss in the same quarter in 2010.

Net sales were up 7.8% year-over-year as growth was strong across all major crops in the seeds and genomics segment. Cotton seed and traits surged 89.8% driven by an increase in planted acres in Australia. Corn seed and traits, which accounts for one-third of total revenue, was up 7.9%.

The gross profit expanded from 43.5% to 44.7% of sales. Selling, general and administrative expenses declined as a percentage of sales from 29% to 25% due in part to corporate restructuring.

Strong EPS Growth Ahead

Management reiterated its EPS guidance of $2.72 to $2.82 per share in 2011. The Zacks Consensus Estimate is at the upper end of this range at $2.82. This represents 17% growth over 2010 EPS.

The 2012 consensus estimate is currently $3.32, equating to 18% EPS growth.

It is a Zacks #2 Rank (Buy).

Solid Dividend History

Monsanto also expects to generate between $800 million and $900 million in free cash flow in 2011. The company has been using its strong cash flows to return value to its shareholders through consistent dividend increases.

It currently yields 1.6%.

Valuation

Shares are trading at 25.4x forward earnings, a premium to the industry average of 14.0x. Its PEG ratio is more attractive, however, at 1.05.

9 Agriculture Stocks to Consider Before the Middle East Dust Settles

2011-02-22T20:29:00.000-08:00

As the dust settles in Tahrir Square and investors try to make sense of the messages sent by protestors, it is important to take a step back to gain insight. While the main take-away from these protests is seemingly that citizens are fed up with having their rights abused and voices stifled by autocratic regimes, if one takes a simple look at the very beginnings of these protests one can easily find a call to the market and subsequently to investors: Inflation is sending food prices higher throughout the developing world. The UN reported that prices for food commodities are up 28% over the past year. This has a huge impact in the developing world. On average, 80% of incomes in developing countries goes on food.

As agricultural commodities prices have risen, households have felt a severe pinch. Thus, before chants became overtly political, protestors in the Maghreb—where the events sweeping the entire region took root—were reclaiming basic commodities at more reasonable prices.

The events in the Middle East, while a very visible catalyst of commodities prices, are in no way isolated indicators of a massive growth in demand for agricultural commodities and the products and services rendered to producers of these commodities. To once again beat a dead horse, the population is growing and not only that, it is getting richer. With increased population and purchasing power there is a steady, growing demand for food. It is as simple as that. While one could try to play the demographics game more tightly and focus investments in companies with outsized exposure to certain growth markets, we feel confident that the traditional players we’ve found along with a Brazilian name offer a good first look for investors who are committed to this investment thesis.

We don’t advocate speculating on the agricultural commodities market, but rather suggest that investors might find opportunities to invest with companies that benefit from these two “mega trends” Amongst the many lessons we can pull from the events unfolding on the streets of the Middle East, from Tunis to Manama, is that commodity prices are rising and the world is going to need more food over the next century. Here are some names that will continue to respond to the world’s food needs. We believe these names are a good starting point for your research but think many are currently trading at high multiples. Investors would be well advised to wait for a pullback before picking up shares. If you’re looking for 2 other ideas to profit from the Middle East uprising, check out the article we published on Friday.

The Mosaic Company (MOS) With a market capitalization just over $37 billion this giant of the fertilizer world is prepared to feed to the soil that grows the world’s agricultural diet. What’s more, it vertically integrates the production of two of the three core inputs, potash and phosphate, that go into its fertilizer product. Despite a very bullish run in the past year, as recently as late January, RBC Capital Markets reiterated its outperform rating for the company. However, we believe shares are overvalued on a discounted cash flow basis, and investors would be advised to add a position on a pullback.

Potash Corporation of Saskatchewan (POT) The eponymous producer of the fertilizer input, PotashCorp, maintains its number one position globally in the potash game. If you listen to the analysts over at UBS, which as with all analysts we would caution you to do with prudence, PotashCorp might well be gold. Despite a massive run up in the price of the stock, UBS reiterated a buy rating for the stock at the end of January. Its quick rise might mean it is due for a price correction in the short term, but it remains a fundamentally sound name in its space.

CF Industries Holdings Inc. (CF) A smaller player with a regionally concentrated market in the central United States, CF Holdings is another fertilizer name that has steady growth prospects for the long term. Its 5-year projected EPS are 8.5%. it should be noted that it, like others in the sector, has experienced a marked run up in its stock price recently. Investors may want to keep an eye on it to see if its price comes in line with their own calculations for an allocation in their portfolios.

Monsanto Company (MON) Generating revenues in excess of $10 billion in 2010, this Midwest firm with global reach defined the space that it operates in: seed production. Seed production, specifically the R&D that goes into seed engineering, may well hold the answer to increasing crop yields. With fixed land inputs and growing demand it may well be the investment best aligned with alleviating hunger in the world. As we detailed here, we think Monsanto should be a name on investors’ watchlists.

Syngenta Corp. (SYT) With over 4 billion dollars of cash on hand and a one-year forward EPS projection of nearly 25% Syngenta is a solid name. This Swiss company competes in two major agricultural arenas: crop protection and seed production. Given that it is an underdog amongst the more established genetically modified seed producers, Monsanto and DuPont (DD), it may well be this mentality that drives it to continue its aggressive investment in R&D and succeed in closing that gap and sating global appetites.

Archer-Daniels Midland Company (ADM) Income and revenue have jumped nearly a third YoY for ADM with a 5-year EPS projection of a very steady and respectable 8%. The company is heavily involved in ethanol so investors strongly committed to this play or those simply looking to add a bit of ethanol exposure to their books without direct commodities investments might be attracted to this venerable name.

Deere & Company (DE) If ever there was a name brand in the agriculture business the iconic John Deere tractor is it. This behemoth of agricultural machinery manufacturing controls more than 50% of the US market, but has seen the growth of its non-US sales rate tear upward and away from its US sales rate in recent years. The company has outperformed over the past 12 months, but so long as you believe in the broader macro thesis and subscribe to the brand loyalty Deere has built and its long history of competitive innovation you might consider adding it to your portfolio.

Brasil Foods S.A. (BRF) Brasil Foods distributes thousands of products to over 100 countries. It is a leader amongst Brazilian food companies. To the many consumers of its frozen food products it is more commonly known by its public-facing name of Perdigao. With a middle class constituting a majority of the population for the first time in Brazil it bodes well for demand of the pre-made meals on offer. It should be noted though, that the stock itself has performed well and is currently trading at the top of its 52-week band.

MarketVectors Agribusiness ETF (MOO) A good way to buy exposure into the agricultural space that diversifies your company-by-company allocation is this ETF that is strongly geared toward the big names of the industry. Its top holdings include, in order, Monsanto, Potash, Mosaic, Deere & Co. and Singapor traded Wilmar International. Indicative of the interest in the sector generally, the daily volume of MOO shares has spiked significantly over the past month and half.

Fertilizer Kings Agrium, Potash Fall To 10-Week Lines

2011-02-22T20:27:00.000-08:00

Three Canadian fertilizer makers, all on the uptrend, may be building entry points. Yet one of the three must first regain its 10-week moving average, where on Tuesday they all retreated.
Grain prices have been rising for months. Bad crops have restricted supply, while new consumers among the populations of China, India and other emerging markets are boosting demand. Ethanol, too, is a driving force for corn, especially as oil prices move higher.
Those high grain prices translated into bigger demand for fertilizer, even as those prices climbed.
Farmers, watching corn, wheat and bean prices double and triple, scrambled to put more acreage into production.

But ag markets suffered a big reversal Tuesday on speculation that Ukraine may remove export restrictions for wheat. Profit taking pushed that market to steep losses, and the urge to purge long positions spread to corn and soybeans.

Are these grains entering a bear market? Is the ride over for fertilizer makers? Maybe, but you're best off letting the market guide you into, or away from, Potash Corp. of Saskatchewan (POT), Mosaic (MOS) and Agrium (AGU).

These three highly rated stocks fell to their 10-week lines on Tuesday in heavy volume, not the best way to show such a retreat.

Potash's 10-week line came in at 169.78, Mosaic's at 79.48 and Agrium's at 91.31.
This is the second such retreat for Agrium and Mosaic since they broke out from cup-shaped bases on Dec. 29. Mosaic's volume didn't kick in until Jan. 5 in response to the company's fiscal Q2 report for the period ended in November.

Potash achieved its first 10-week-line retreat since its breakout, also on Dec. 29.

Potash, the target of a failed takeover bid by BHP Billiton (BHP), boosted its EPS in the past four quarters by 224%, 154%, 61% and 124%. Sales rose 43% to 86% in those periods, all compared with weak year-earlier results.

Potash leads its two rivals by annual pretax margin (38% in 2010) and return on equity (28%).
Consensus estimates peg Potash's EPS gain at 52% for 2011.

Mosaic logged triple-digit profit gains in three of the past four quarters, with one result compared with a year-earlier loss. Sales rose in the past four quarters 17% to 56%.
Mosaic is expected to improve its bottom line 113% in fiscal 2011, which ends in May. For 2012, look for 27% growth.

Agrium, with a December-ending fiscal year, is expected to boost its EPS 52% in 2011. Its EPS growth accelerated the past two quarters, from 30% to 78% to 225%.
When the closing bell rang, Potash finished 6% lower, Mosaic 3% lower, both barely above their 10-week line.

Agrium also lost 3% and is about 1% below its 10-week line. But the approach is the same for all three: Buying so near the line after a high-volume fall is perilous. Look for a bounce with solid turnover to confirm that buyers are coming in.

Running Like A Deere

2011-02-22T20:25:00.000-08:00

When crop prices are high, there is a go-to line-up of stocks for theme investors to play. Fertilizer names like Potash (NYSE:POT) and Mosiac (NYSE:MOS) usually catch a bid, as do seed companies like Syngenta (NYSE:SYT). And then there are the machinery companies - stocks like AGCO (Nasdaq:AGCO), CNH Global (NYSE:CNH) and the biggest of them all, Deere (NYSE:DE). Whether the logic always works out as expected (high crop prices produce more cash for farmers who can buy new equipment) or not, these have been bullish times for crops and bullish times for Deere's stock.

The Quarter That WasWhether the byproduct of high crop prices, better credit access, more optimism among farmers, or some combination, Deere delivered another strong quarter. Revenue rose 30% this period to over $5.5 billion, with agriculture (and turf) up 21% and construction (and forestry) up 81% from a low base. Although that was a solid jump in sales, it was nevertheless below the average analyst estimate of $5.67 billion.

Like most heavy machinery manufacturers, Deere's business is more profitable when the factories have solid throughput. To that end, higher revenue helped enable improved gross margin (up about 150 basis points from last year). Deere's management also deserves praise for holding the line on operating expenses, as operating income more than doubled and the operating margin expanded by more the four points. As a result, though Deere came up short on revenue the company handily surpassed the average EPS estimate. (For more, see 4 Things to Know About Earnings Season.)

The Look AheadThese are good times to be a farmer in the western hemisphere. Floods have damaged crops in Australia and Africa, while droughts have severely damaged yields in Russia and Ukraine this year. That has all contributed to much-publicized jumps in food prices and unrest in many parts of the world. Couple that with improved credit conditions in North America and Brazil's ongoing willingness to subsidize loans for its farmers, and the demand picture over here is rather healthy.

At some point, though, it is worth wondering if Deere is going to see a squeeze from cost inputs. Companies like AK Steel (NYSE:AKS) and Nucor (NYSE:NUE) have pushed through steel price increases and they seem to be sticking. What's more, component companies like Eaton (NYSE:ETN) and Titan (NYSE:TWI) are looking to pass on their own cost/price increases as well. So with Deere having increased its production tonnage by 41% this last quarter, how long will it be before costs squeeze margins? (For more, see Prepare Your Portfolio For Higher Food Prices.)

The Bottom LineWhen a theme trade is running, it is almost pointless to talk at much length about valuation and fair prices for stocks. Deere is the biggest and quite possibly the best-run agricultural machinery company out there, so it seems pretty clear that the stock is going to attract buyers when investors want ag exposure. AGCO, CNH and Kubota (NYSE:KUB) all look cheaper than Deere, but there is no particular reason to think there will be a big catch-up trade on the basis of valuation.

If investors have a particular notion that European demand will pick up (relatively better news for CNH) or that Asian demand will be strong (good for Kubota), that could be a valid reason to trade away from Deere. Failing that, so long as the ag trade remains popular, it's likely that Deere's stock will stay popular. (For more, see Deere Keeps Plowing.)

3 China Agriculture Stocks for 2011

2011-02-12T20:09:00.000-08:00

NEW YORK (TheStreet) -- In 2011, agricultural commodities prices will depend on crop prospects, according to a Food and Agriculture Organization (FAO) report. A sharp deterioration in crop outlook will affect price movements adversely. The FAO's index of 55 food commodities rose for the fifth straight month in November, touching two-year highs. Unless the global output of agricultural commodities improves in 2011, food prices will continue to spiral up, according to FAO.

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OpinionMarket Activity

Monsanto Company| MON Potash Corporation of Saskatchewan Inc.| POT Yongye International Inc.| YONG Prices of agricultural commodities will rally next year, driven by rising demand from emerging markets, as per Rabobank Group. In addition, surging crude oil prices, depleting global food stockpiles and a weakening dollar may push prices higher.

If energy and food prices surge, it would raise the attractiveness of biofuels, made from farm commodities, pushing fertilizer prices higher. Down the value chain of commodities, any upward movement in energy prices affects sugar and corn prices.

A recent Chinese commerce ministry statement said as pressure mounts due to escalating prices and tight supplies, acquiring new supplies will play a key role in softening inflation and curbing speculation. For this, China has decided to tap international markets for sugar, cotton and meat, especially from India and the U.S., among others.

While China's CPI closely correlates to food prices, the country recorded a 5.1% CPI growth in November, with food and household expenses contributing 92%. Among agricultural commodities, as grain prices increase, food production costs and beverage processing costs rise.

We have identified three China agriculture stocks that will likely provide attractive returns to investors. These stocks are stacked base on upside potential.

China Agritech(CAGC), operating through its subsidiaries, manufactures and sells organic liquid compound fertilizers, organic granular compound fertilizers, and related agricultural products in China. Of all the analysts covering the stock, 75% recommend a buy. The stock has a 32.5% upside based on the consensus target price.

During the first nine months of 2010, the company posted a 41% year-over-year increase in net revenue, while cash equivalents more than doubled, indicating a strong financial base. Looking ahead into the fourth quarter and upcoming year, Agritech said prices of agricultural products are on a roll and it is leveraging the favorable trend to achieve its annual target. Analysts at Bloomberg estimate Agritech's fourth quarter revenue at $31.3 million, compared to $23.9 million recorded in the third quarter.

Agritech recently opened the first branded large-scale distribution center in Henan province and plans to construct more such facilities in 2011. Each of these would cover 85-100 franchised stores, which will sell 50% of the company's products and 50% of third-party products. On one hand, the cost of building one distribution center is almost $1 million, while on the other, annual revenue contribution is estimated at $3.7 million, once the plant becomes operational.

Zhongpin(HOGS_) is engaged in the processing and distribution of meat and food products in China. Of all the analysts covering the stock, 78% recommend a buy. While there is no sell rating on the stock, the remaining analysts recommend a hold. Zhongpin has a 36.4% upside based on the consensus target price. Based on the positive trend in pork prices and the company's significant capex plans, the stock seems attractive and is likely to generate handsome returns in 2011.

Zhongpin has filed a registration for a potential equity offer, debt, and/or other instruments to raise up to $250 million, as per company sources. The main aim of the registration is gaining additional flexibility for raising funds from equity in 2011, in the event of interest rate hikes and a credit crunch. Meanwhile, timing and offer price have not been disclosed in the registration filed.

Zhongpin recently announced plans to build a production, research and development, test, and training complex in its home city Changge in Henan, China. The company plans to invest $58.5 million on the facility and construction for the first phase with a capacity of 50,000 metric tons is scheduled to start in the first quarter of 2011 and will be completed in third quarter of 2011. With this facility, the company will be adding 100,000 metric tons of capacity for prepared pork products.

Yongye International(YONG_) operating through its subsidiary, is engaged in the manufacture, research and development, and sale of fulvic acid-based liquid and powder nutrient compounds used in the agriculture industry. Of all the analysts covering the stock, 80% recommend a buy. Yongye has a 85.4% upside based on the consensus target price.

At the end of 2010 third quarter, the company had a gross margin of 58.7%, sales growth of 145.1%, and a trailing 12-month sale of $196.2 million. Among peers in the fertilizer and agricultural chemical industries, Yongye has the highest gross margin, indicating investment potential. In comparison, Monsanto(MON_) and Potash Corporation of Saskatchewan(POT_) have gross margins of 44.1% and 35.8%, respectively.

After reporting third quarter results, the company achieved its set target for the full year 2010 within a span of three quarters. For 2010, the company sees revenues ranging between $200 and $205 million, and adjusted net income to increase in the range of 90.8% to 98.4% from prior year levels. Looking ahead, the company estimates at least a 50% annual growth rate in its revenue in 2011 and 2012.

How Long Can Mosaic's Dividends Last?

2011-02-11T11:07:00.000-08:00

Whether you're a beginning investor or a near-retiree, the importance of purchasing stocks that pay dividends cannot be overstated. Not only do companies that have quarterly or annual payouts provide you with a steady stream of income, they also have the potential for capital appreciation. Simply put, dividend stocks can you give your portfolio what almost no other investment can -- both income and growth.

At The Motley Fool, we're avid fans of dividends -- and not just because we like that steady stream of cash. Studies have shown that from 1972 to 2006, stocks in the S&P 500 that don't pay dividends have earned an average annual return of 4.1%; dividend stocks, however, have averaged a whopping 10.1% per year. That is an incredible difference -- one that you'd be crazy to not take advantage of!

But investing in dividends can be dangerous -- companies can cut, slash, or suspend dividends at any time, often without notice. Fortunately, there are several warnings signs that may alert you, and these red flags could be the crucial factor in determining whether or not a company is likely to continue paying its dividend. Today, let's drill beneath the surface and check out Mosaic (NYSE: MOS).

What's on the surface?
Mosaic, which operates in the fertilizers and agricultural chemicals industry, currently pays a dividend of 0.23%. That dividend yield may not seem like much, but considering that over 100 companies in the S&P 500 don't pay anything at all, it's nothing to complain about. Plus, don't forget, dividends typically grow with time, so that 0.23% has the potential to skyrocket over time.

But what's more important than the dividend itself is Mosaic's ability to keep that cash rolling. The first thing to look at is the company's reported dividends versus its reported earnings. If you happen to see dividend payments that are growing faster than earnings per share, it may be an initial signal that something just isn't right. Check out the graph below for details of the last five years:

Clearly, there doesn't seem to be a problem, here. Mosaic has been able to boost its earnings at an adequate pace and keep its dividends in check at the same time.

The more secure, the better
One of the most common metrics that investors use to judge the safety of a dividend is the payout ratio. This number tells you what percentage of net income is paid out to investors in the form of a dividend. Normally, anything above 50% is cause to look a bit further. According to the most recent data, Mosaic's payout ratio is 4.60%. It's obvious that, at least on the surface, there aren't any problems with Mosaic generating enough income to support that nice dividend of 0.23%.

More important than checking out the payout ratio may be simply taking a peek at Mosaic's cash flow. Free cash flow -- all the cash left over after subtracting out capital expenditures -- is used by firms to make acquisitions, develop new products, and of course, pay dividends! We can use a simple metric called the cash flow coverage ratio, which is cash flow per share divided by dividends per share. Normally, anything above 1.2 should make you feel comfortable; anything less, and you may have a problem on your hands. Mosaic's coverage ratio is 7.67 -- which is more than enough cash on hand to keep pumping out that 0.23% yield. Barring any unforeseen circumstances, there really shouldn't be any major problems moving forward.

Either way, it's always beneficial to compare an investment with its most immediate competitors, so in the chart below, I've included the above metrics with those of Mosaic's closest competitors. In addition, I've included the five-year dividend growth rate, which is also a very important indicator. If Mosaic can illustrate that it's grown dividends over the past five years, then there's a good chance that it will continue to put shareholders first in the future.

The Foolish bottom line
Only you can decide what numbers you're comfortable with in the end; sometimes a higher yield and a higher reward means additional risk. However, when we look at Mosaic's payout ratio compared to its peer average, we see that it is a lower percentage, which illustrates that its dividend is probably more sustainable. The bottom line, however, is to make sure that with anything -- whether it be a dividend, a share repurchase, or an ordinary earnings report -- you do your own due diligence. Looking at all of the numbers in the best context possible is just the best place to start.

5-Star Stocks Poised to Pop: Chemical & Mining Co. of Chile

2011-02-11T11:05:00.000-08:00

Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, Latin fertilizer giant Chemical & Mining Co. of Chile (NYSE: SQM) has earned a coveted five-star ranking.

With that in mind, let's take a closer look at SQM's business and see what CAPS investors are saying about the stock right now.

Chemical & Mining Co. of Chile facts

Headquarters (Founded)
Santiago, Chile (1968)

Market Cap
$14.58 billion

Industry
Fertilizers and agricultural chemicals

Trailing-12-Month Revenue
$1.71 billion

Management
CEO Patricio Contesse (since 1990)

CFO Ricardo Ramos (since 1994)

Return on Equity (Average, Past 3 Years)
26.4%

Cash/Debt
$615.85 million / $1.3 billion

Dividend Yield
1.2%

Competitors
Agrium (NYSE: AGU)

Mosaic (NYSE: MOS)

PotashCorp (NYSE: POT)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 98% of the 1,251 members who have rated Chemical & Mining Co. of Chile believe the stock will outperform the S&P 500 going forward. These bulls include All-Stars DarthMaul09 and marc64, both of whom are ranked in the top 5% of our community.

Just last month, DarthMaul09 tapped Chemical & Mining Co. of Chile as a particularly powerful opportunity:

Lithium only represents a small part of the company's profits, most of it comes from fertilizer and other industrial chemicals. Lithium therefore has the potential to dramatically improve the company's revenue, especially if that next generation "miracle" battery ever becomes a reality. But for now the company will likely rise with the food commodity rally that may extend for most of this year.

Over the past three years, Chemical & Mining Co. of Chile has even grown its bottom line at a faster pace (27.7% per annum) than listed rivals Agrium (17.4%), FMC (NYSE: FMC) (9.2%), and PotashCorp (17.8%), as well as other fertilizer plays like Intrepid Potash (NYSE: IPI) (-7.9%) and Mosaic (27.2%).

CAPS member marc64 expands on the outperform case:

SQM is a potash fertilizer play in what looks to be a crunch year for food supplies, and maybe into the future. Whatever actually happens to food commodities, the farmer will be tempted to increase output.

Add to the fertilizer play, the sweet coincidence of electric cars hitting the market in a fairly big way this year. Count me among those who think the hum/whoosh of an all-electric car is much cooler than the din of exploding fossil fuels. ... It will take a while, but electric is compelling, and lithium is the high-performance choice for batteries.

The fact that SQM is the low-cost leader in lithium leverages up profit growth potential, and makes me feel a lot better about the high PE.

Investors warm up to big deals

2011-02-11T11:01:00.000-08:00

The big takeover deal has come back, reflecting increased corporate confidence and economic recovery. What should hearten prospective deal makers is how the stock market has reacted to the transactions: It has loved them.

Across the globe, deal volume stands at $338 billion so far this year, a rate 25% higher than in the same period last year. And in the U.S., deal volume is more than double last year's rate, which makes 2011 the most active since 2008.

The deals are getting bigger, too. In 2011, there have been 12 deals valued above $5 billion, eight of them in the U.S., according to Dealogic. There were only two such deals in the U.S. at the same time last year.

For all their size, the deals have had little sizzle, serving to consolidate mostly coal-mining, utilities and exchange companies. There was Alpha Natural Resources Inc.'s $7.1 billion deal to buy Massey Energy Co., a $13.7 billion merger of utility companies Duke Energy Corp. and Progress Energy Inc., and this week, the planned deal between London Stock Exchange Group PLC and Canada's TMX Group Inc., the company that owns the Toronto and Montreal exchanges.

One of the big differences from past merger run-ups: Investors are sending the acquirers' stock prices up, not down, after the deals are made public.

Shareholder Approval
Stock owners of acquiring companies are showing support for big transactions.

Shares of iron-ore producer Cliffs Natural Resources Inc. rose nearly 3% on Jan. 11 after it announced a deal for rival iron-ore producer Consolidated Thompson Iron Mines Ltd. for about $5 billion.

On Monday, Danaher Corp. agreed to pay $5.87 billion for Beckman Coulter Inc., which makes diagnostic equipment used in medical testing. Danaher is paying a 45% premium on Beckman shares, usually a sum that sparks acquiring-company shareholders to fear the company is spending too much. But Danaher stock rose on the news, as investors cheered the industrial conglomerate's move into a new, high-growth sector of life sciences. Swelling middle-class populations in emerging markets such as China and India are expected to drive demand for preventive medical care, of which clinical testing is a central feature.

Deutsche Bank analyst Nigel Coe called the deal "strategically coherent" and said the low cost of financing the deal, given the state of credit markets right now, will add more to Danaher's earnings.

Wall Street has welcomed these deals because many of these industries were ripe for consolidation before the recession, but deal-making was put on hold as the debt markets shut down and companies preferred to hold on to their cash.

For instance, Deutsche Börse AG and NYSE Euronext talked seriously about a deal in 2008 and 2009, but the fragile global economy discouraged a cross-border merger. The two are now close to a tie-up to form a company with a putative market value of $25 billion, and a deal could be sealed next week. The Big Board's stock shot up as much as 18% on news of the latest talks, which followed Tuesday's merger news between the owners of the London and Toronto exchanges. Shares of those companies climbed 9% and 4%, respectively.

"We saw a time period in 2009 and even in early 2010 when CEOs were primarily focused on tactical opportunities, but today they're focused more on strategic opportunities," said Jack MacDonald, co-head of Americas M&A at Bank of America Merrill Lynch.

Danaher, for instance, has had its eye on diagnostics companies for years. It was a confluence of factors, including the improving economy, with "headwinds dissipating, tailwinds getting stronger," that helped it seal a deal for Beckman, Danaher Chief Executive Lawrence Culp said in an interview Monday.

Low interest rates, strong corporate performance in 2010 and a sense that the global economy is moving forward have put companies "back in the M&A game," he added.

Still, some deal makers noted that there is reason to be cautious, given the worries about the finances of some European governments as well as unexpected crises like the protests in the Middle East.

"Transformational deals are back," said Mark Shafir, head of global M&A at Citigroup. "Companies are willing to take more risks. But with six weeks behind us, it's early to declare victory."

In 2010, there were 65 deals around the world valued at more than $5 billion, compared to 132 such transactions in 2007, considered the heyday of the last merger wave.

Last month, agribusiness giant Cargill Inc. said it plans to give up its majority stake in fertilizer company Mosaic Co. in a transaction valued at about $24.3 billion. The move could make Mosaic, a leading seller of potash and phosphate, a more attractive takeover target.

Although private-equity firms have been largely absent from headline-grabbing transactions, they have competed for multibillion-dollar deals. Many observers expect that with attractive financing terms and the need to put capital to work, there will be several leveraged buyouts that hit $10 billion or more this year. Private-equity firms weren't able to hit that benchmark last year, although financing terms improved.

A group that included Apollo Management, Bain Capital and TPG Capital proposed acquiring Sara Lee Corp. for almost $19 per share. But the Downers Grove, Ill.-based company, which had sought at least $20 per share, rejected the offer as too low. Brazilian meats processor JBS SA was also interested in Sara Lee but faced difficulties raising financing to increase its bid.

"You're going to see a robust, pretty good quarter and first half, as long as the macroeconomic and geopolitical environment doesn't flare up," said Boon Sim, global head of M&A at Credit Suisse. Mr. Sim said he expects overall M&A activity this year to be up 30% over 2010.

Dupont stock to ride out agricultural boom-Barron's

2011-02-06T20:39:00.000-08:00

NEW YORK, Feb 6 (Reuters) - U.S. chemicals group Dupont's (DD.N) shares could be one of the best ways for investors to profit from the the boom in agricultural stocks, business weekly newspaper Barron's said in its Feb. 7 edition.

Dupont, which recently made a $6.3 billion bid for Danish food producer Danisco (DCO.CO), would derive one-third of its revenue from seeds and other agricultural products if Danisco shareholders approve the deal, Barron's said.

The deal should start adding to Dupont's earnings next year and increase long-term profit growth by two percentage points to between 13 percent and 14 percent per year, Barron's said, citing a Soleil Securities analyst.

Dupont shares are cheaper on a price-expected earnings ratio basis than those of fertilizer maker Potash Corp of Saskatchewan (POT.TO) and biotech company Monsanto (MON.N), Barron's wrote. (Reporting by Phil Wahba, editing by Maureen Bavdek)

Modified Beet Gets New Life !!!

2011-02-05T12:06:00.000-08:00

The Agriculture Department, trying to avoid a shortage of U.S. sugar, said Friday it would allow U.S. farmers to resume planting the widely used genetically modified version of the sugar-beet plant that a federal judge has effectively banned.

More than half of the nation's granulated sugar—the stuff that consumers buy in supermarkets for baking or to pour in coffee—has in recent years come from beet plants genetically modified in the same way as most of the corn, soybeans and cotton grown in the U.S. The other half comes from sugar cane.

The beets, which are grown extensively around the border between North Dakota and Minnesota, have a Monsanto Co. gene that gives them immunity to glyphosate-based weedkiller, which the St. Louis biotechnology company sells as Roundup herbicide.

U.S. District Judge Jeffrey S. White, who sits in San Francisco, last year blocked farmers from planting the weedkiller-resistant beets again this spring. He concluded the USDA should have conducted a lengthy study of the crop's potential consequences for groups such as organic farmers before originally clearing it in 2005.

An environmental-impact statement of the type ordered by the judge is usually thousands of pages long and takes years to conduct. That would have kept the genetically modified sugar beets out of the hands of farmers at least through 2012.

Monsanto said Friday that the USDA's move would allow U.S. farmers to begin planting genetically modified sugar beets this spring. But environmental and organic-seed groups that originally sued the USDA said Friday they would ask Judge White to block this latest move by the USDA.

Crop biotechnology and sugar interests had appealed to the USDA for some way to temporarily circumvent the judge's planting ban. According to biotechnology officials, that door opened when Monsanto successfully argued before the Supreme Court in 2010 that the USDA should be able to partially deregulate a genetically-modified crop while the agency completes environmental studies.

"Our clients would be irreparably harmed by the USDA's action," said Paul Achitoff, an attorney with Earthjustice, a nonprofit environmental-law firm, which is representing organic seed farms.

Sugar-beet processors say there aren't enough traditional seeds around for farmers to plant this spring. A study conducted for the sugar industry predicted that U.S. sugar production would plunge 20% if the judge's ban stays in place.

That prediction alarmed food companies because a big drop in the U.S. sugar-beet crop would raise their sugar costs, which already have climbed sharply in recent years, thanks partly to booming demand and partly to weather problems in some sugar-growing regions of the world. The price of sugar has nearly tripled over the past two years.

The USDA, in a move that seemingly expands its regulatory powers over crop biotechnology, will for the first time "partially deregulate" a genetically modified crop. USDA is permitting farmers to plant genetically modified sugar beets this year only if they adhere to rules designed to prevent the plant's wind-blown pollen from reaching organic fields, where its biotechnology traits could spread.

Organic-food makers typically reject any ingredients in which they detect genetically modified materials, costing the grower the big price premium usually commanded by organic crops.

Until now, the USDA has always allowed the unrestricted planting of a genetically modified crop once it had passed its regulatory review, a process that largely hinges on the narrow question of whether a genetically modified crop could somehow become a plant pest.

The USDA decision is the second big victory for the crop-biotechnology industry in a week. The Obama administration earlier decided to allow unrestricted planting of Roundup-resistant alfalfa after flirting for nearly a month with the idea of placating organic farmers by restricting the planting of that seed in some states.

In the case of sugar beets, crop biotechnology and sugar interests had appealed to the USDA for some way to temporarily circumvent the judge's planting ban. According to biotechnology officials, that door opened when Monsanto successfully argued before the Supreme Court in 2010 that the USDA should be able to partially deregulate a genetically modified crop while the agency completes environmental studies.

Under the USDA plan released Friday, the handful of farmer-owned cooperatives that process the vast majority of the nation's sugar beets would have to sign compliance agreements with the USDA, and provide extensive information about the location and movement of the crops.

The USDA is also banning the production of genetically modified sugar beets in some places where seeds for organic beets are produced, such as in California and parts of Washington state. In other places, the USDA won't allow genetically modified sugar beets to be grown within four miles of seed being raised for conventional versions of beet-like plants.

Navellier's Top 3 Agricultural stocks

2011-02-04T20:31:00.000-08:00

Deere(DE) is the world's largest farm equipment manufacturer and a leading producer of construction, forestry and commercial and residential lawn care equipment. Unlike in Eastern Europe, where wheat production has slowed, U.S. crops have surged in the past several months. Currently, the country is producing a record number of crop exports. The higher demand for crops is leading to a greater need for farm equipment.

Although agriculture only accounts for about 1% of the U.S. economy, the actual impact of surging prices could be 10 times greater once spending on equipment, seeds, grain handling and food processing is calculated. This is why Deere stands to capitalize on high agricultural commodity prices. I see this as a great way to play the overall trend in higher food prices that is developing, along with the decline in the U.S. dollar.

Agrium(AGU) is a major producer and marketer of fertilizers in North America. The company operates plants in Argentina, Canada and the United States that produce mostly nitrogen, as well as potash and phosphate products. These plants have the capacity to produce more than 8 million tons of the nutrients per year. In addition to supplying wholesalers, Agrium operates more than 826 retail outlets in the United States and South America. The company has had trouble in recent quarters living up to analyst expectations, so if the company meets or beats in its next report this could be a runaway winner.

CF Industries (CF) is a regional agricultural firm that manufactures and markets nitrogenous and phosphate fertilizers. The company operates a network of manufacturing and distribution facilities, primarily in the Midwest. It's a no-brainer when it comes to understanding why fertilizer companies are doing so well right now. CF is a go-to company when farmers need to boost crop yields to meet the global demand for food.

CF has had some of the same issues as AGU when it comes to earnings, but the company has seen improving fundamentals over the past six months, and looks like shares will continue their march higher in the coming months.

Top 3 Agricultural Stocks to watch in 2011

2011-02-04T20:27:00.000-08:00

The Mosaic Company (NYSE: MOS) is a Plymouth, Minnesota-based producer and marketer of concentrated phosphate and potash crop nutrients for the worldwide agriculture industry.

Mosaic will announce its second-quarter financial results next week. For the first quarter, the company posted total phosphate sales volumes of 3.1 million tons, and total potash sales volumes of 1.7 million tons. The company’s gross margin was 23% in the first quarter. It posted a net income of $297.7 million, or $0.67 per share.

For the second quarter, the company expects total phosphate sales volumes to come in between 3.3 million and 3.6 million tones and total potash sales volumes to come in between 1.6 million and 1.9 million tons.

The Mosaic stock has a 52-week range of $37.68-$74.25. Year-to-date, the stock is up 18.95%.

The Dow Chemical Company (NYSE: DOW) is a Midland, Michigan-based company engaged in the manufacture and sales of chemicals, plastic materials, agricultural and services, and other specialized products and services.

Earlier this month, Dow announced that it plans to build a new Propylene Glycol Plant in Thailand. The company said that it plans to build a plant with production capacity of up to 150 KTA.

Earlier this month, Dow also declared a quarterly dividend of $0.15 per share. The dividend will be payable on January 28, 2011, to shareholders of record on December 31, 2010.

The Dow Chemical stock has a 52-week range of $22.42-$34.50. Year-to-date, the stock is up 23.34%.

Agrium Inc. (NYSE: AGU) is a Calgary, Canada-based retailer of agricultural products and services in the U.S., Argentina, Chile and Uruguay. The company is also engaged in the worldwide production and wholesale marketing of nutrients for agricultural and industrial markets.

Earlier this month, Agrium announced that it successfully completed its acquisition of AWB Limited at a price of $1.50 per share in cash.

The Agrium stock has a 52-week range of $47.96-$89.69. Year-to-date, the stock is up 39.27%.

CARBO Ceramics Inc. (CRR): Zacks Rank Buy

2011-02-04T20:17:00.000-08:00

CARBO Ceramics Inc. (NYSE: CRR - News) remains one hot company as it wrapped up the best year in the company's history in 2010. This Zacks #1 Rank (strong buy) recently surprised on the Zacks Consensus Estimate for the 4th quarter in a row which sent shares soaring to new highs.

CARBO is the world's largest supplier of ceramic proppant for fracturing oil and gas wells. With natural gas prices in the dumps, its customers have been moving towards oily, liquid-rich plays especially in the major shale areas in North America.

Revenue Jumped 33% in the Fourth Quarter

On Jan 27, CARBO reported its fourth quarter results and blew by the Zacks Consensus Estimate by 17%. Earnings per share were 91 cents compared to the consensus of 78 cents.

Revenue climbed $29.5 million to $119.6 million. Proppant sales volume rose 20% to 332 million pounds. Breaking it down by geographic segment, proppant sales volume rose 17% in North America (excluding Mexico) and 37% in the international segment compared to the fourth quarter of 2009.

'Exiting the third quarter, we witnessed continued momentum in proppant sales,' said President and CEO Gary Kolstad.

'The up tick in horizontal fracturing in oil bearing reservoirs, coupled with our traditionally strong footprint in gas driven plays, caused sales volume resilience in a quarter that historically shows seasonal weakness,' he added.

The company started operations on the third 250 pound production line at the Toomsboro, Georgia facility. It will be completing that line and completing the fourth line by the end of 2011.

The Outlook for 2011 Looks Bright

The company is bullish about 2011 as industry activity levels remain high even though natural gas prices are low. CARBO continues to see a shift in activity to oily, liquid-rich plays which is where its proppant comes into play.

It is ramping up production at several of its facilities. CARBO started site preparation for a second resin coating line at its New Iberia facility which will increase resin coating capacity to 400 million pounds annually from the current capacity of 100 million.

Zacks Consensus Estimates Move Higher

Not surprisingly given the solid quarter, Zacks Consensus Estimates have moved sharply higher since the earnings announcement.

The 2011 Zacks Consensus Estimate jumped 14 cents to $4.20 per share. That is earnings growth of 22.5% compared to 2010, which was already a record year.

The party is expected to continue into 2012 with the Zacks Consensus rising to $5.33 from $4.96 in the last week, as 4 estimates moved higher and 1 lower in that time.

That is another 27% earnings growth.

Valuations In Line With Peers

CARBO is not a cheap stock. It is trading at 27x forward estimates which is much more expensive than the S&P 500 at 14x.

However, its peers are also trading at 27x so it is in line with their valuations.

Shares At 10-Year Highs

Shares have been in a strong rally for the last 2 years and the recent earnings results have pushed shares to yet another 10 year high.

This Week's Momentum Zacks Rank Buy Stocks

CF Industries Holdings, Inc. (NYSE: CF - News) continues to trade strong, recently hitting a new multi-year high at $149.65 as agriculture prices remain in elevated territory. With a bullish growth projection and discounted valuation, this Zacks #1 rank stock is a solid momentum player. Read the full article.

Holly Corporation (NYSE: HOC - News) jumped to a Zacks #1 Rank (Strong Buy) thanks to an influx of upward estimate revisions. The outlook for HOC has been steadily improving, as has the share price. Read the full article.

With millions of smartphones and tablets expected to be sold in 2011, wireless technology is hot. InterDigital, Inc. (NasdaqGS: IDCC - News) expects to report a strong fourth quarter on Feb 23. Shares of this Zacks #1 Rank (strong buy) have soared in the last 6 months. Read the full article.

Caterpillar Has Stellar 2010

2011-02-04T15:00:00.000-08:00

Caterpillar Inc. (NYSE: CAT - News) ended fiscal 2010 on a promising note coming off a very challenging 2009. The company’s fourth quarter adjusted EPS increased almost four fold to $1.47 and fiscal 2010 adjusted EPS almost doubled to $4.15 from the prior-year comparable periods.

The upbeat results were augured by ever-increasing demand for mining and construction equipment that drove sales.

Both the fourth quarter and fiscal year EPS outperformed the respective Zacks Consensus Estimates of $1.27 and $4.01. Caterpillar also whizzed past its guided range of $3.80 to $4.00 for fiscal 2010.

The adjusted EPS for both the prior-year comparable periods excluded redundancy costs. Including redundancy costs, fourth quarter fiscal 2010 EPS was quadrupled from 36 cents reported in the year-ago quarter while fiscal 2010 EPS was almost three times the $1.43 reported in the prior year.

Revenues in the quarter were $12.8 billion, a 62% jump from $7.9 billion in the year-ago period and well above the Zacks Consensus Estimate of $11.4 billion. Region wise, North America led the pack with a growth of 78%, followed by Latin America, Asia-Pacific and EAME markets posting impressive growth rates of 59%, 55% and 49%, respectively.

For fiscal 2010, revenues upped 31% year over year to $42.6 billion, outperforming the Zacks Consensus Estimate of $40 billion by a good margin. The reported revenue was also higher than the company’s guided revenue range of $41 million to $42 billion.

For the full year, Latin America led the results with a 58% climb, followed by Asia Pacific, North America, and EAME markets increasing 43%, 30% and 13%, respectively.
Cost of goods sold increased 60% year over year to $9.3 billion in the quarter but, as a percentage of revenue, declined 110 basis points to 73%. Selling, general and administrative (SG&A) expenses increased 18% to $1,109 million in the quarter and, as a percentage of revenues, improved 320 basis points to 8.7%.
Consequently, gross margin increased 110 basis points to 27% and operating margin expanded 850 basis points to 10.1% in the quarter.

Segment Performance

Machinery sales surged 88% to $8.6 billion in the quarter due to higher end-user demand and the absence of dealer inventory reductions seen in 2009. The segment posted an operating profit of $705 million in stark contrast to a loss of $123 million in the year-ago quarter.

Higher sales volume, which included the impact of an unfavorable mix of products, and improved price realization were partially offset by higher SG&A, research and development (R&D) expenses and manufacturing costs.
Engines sales increased 36% to $3.57 billion primarily driven by higher sales of engines for electric power, petroleum and industrial applications. Increased price realization was offset by a negative currency translation impact. The segment’s operating profit increased a whopping 123% year over year to $539 million.
Increased sales volume, which included the impact of an unfavorable mix of products, and improved price realization were partially offset by higher SG&A and R&D expenses.

Financial Products revenues dipped 6% to $666 million due to lower average earning assets. The segment’s operating profit went up 62% to $102 million.
The increase was driven by a $26 million decrease in the provision for credit losses at Cat Financial, a $23 million favorable change from returned or repossessed equipment and a $13 million favorable impact due to lower claims experienced at Cat Insurance, partially offset by a $14 million unfavorable impact from lower average earning assets and $11 million due to incentive pay.

Financial Position

Caterpillar had cash and cash equivalents of $3.59 billion on the balance sheet as of December 31, 2010, up from $2.3 billion as of September 30, 2010. The company generated net cash from operating activities of $5 billion from operating activities in fiscal 2010 compared with $6.5 billion in the prior year.
Machinery and Engines’ debt-to-capital ratio improved to 34.8% as of December 31, 2010compared with 39.1% as of September 30, 2010 and 47.2% as of December 31, 2009.

Looking to 2011

Caterpillar expects its sales to cross the $50 billion mark in fiscal 2011. This translates into a 17% year-over-year growth from sales of $42.6 billion recorded in fiscal 2010. Developing countries are expected to maintain their growth trajectory along with improving economies in North America and Europe.

Strong demand for mining products and the need for dealers to add to inventories and replenish rental fleet are expected to be accretive to 2011 sales. The company however admitted that these increases might be marred by small declines in later cycle industries, such as turbines and marine engines.

The company expects the world economy to grow more than 3.5% in 2010 driven by a growth of 6.5% from developing economies. The Asia-Pacific economy should grow 7.5% in 2011. Caterpillar forecasts a growth of 4.5% in Latin America and more than 5% growth in Africa/Middle East, and the CIS in 2011. The U.S economy is expected to grow about 3.5% in 2011 and Europe to post a 2% growth.

Earnings per share are expected to be near $6.00, suggesting 45% year-over-year growth from the 2010 figure of $4.15. The EPS growth is expected to be driven by higher sales volume, improvement in price realization, comparatively flat material costs, somewhat offset by unfavorable product mix, higher manufacturing costs, SG&A and R&D expense, higher taxes and bridge financing costs associated with the Bucyrus acquisition.

If Caterpillar accomplishes this lofty target, 2011 will be a milestone year for the company with the highest EPS in its history, topping the prior record of $5.66 set in 2008.

During the year, Caterpillar made a number of announcements to enhance its capacity for key products like mining trucks and excavators, which include three new facilities in the United States and significantly five outside the United States. Caterpillar plans to expend about $3 billion in capital expenditures, with more than half earmarked to be spent in the United States.
During 2010 Caterpillar announced three significant acquisitions — Electro-Motive Diesel Inc, Motoren-Werke Mannheim Holding GmbH and Bucyrus International Inc. (NasdaqGS: BUCY - News). The 2011 guidance includes the impact of the Electro-Motive Diesel Inc. deal but excludes the acquisitions of the other two as these are yet to close.

Our Take

Caterpillar’s strong brand name, pricing power and global dealer network put it in a vantage position to capitalize on the growing need for infrastructure development worldwide. We believe Caterpillar’s expansion plans of opening new facilities and furthering existing operations, particularly in emerging markets, will boost its long-term potential. Furthermore, its biggest acquisition to date, Bucyrus, will not only enhance its product line and increase its presence in the emerging markets, but also strengthen its position as the #1 mining equipment manufacturer in the U.S.

We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is one of the few leading U.S. companies in an industry that competes globally from a principally domestic manufacturing base. The company operates three divisions – Machines, Engines and Financial Products. Caterpillar competes with CNH Global NV (NYSE: CNH - News), Komatsu Ltd. (Other OTC: KMTUF.PK - News) and Volvo AB (Other OTC: VOLVY.PK - News) but is way ahead of its peers.

Better Buy: Caterpillar or Deere ?

2009-12-01T19:41:00.000-08:00

Today's matchup is Caterpillar (NYSE: CAT) vs. Deere (NYSE: DE). Using five short-of-scientific-but-carefully chosen criteria, let's determine which is the better buy according to the numbers:

Round 1: Cheapness

Advantage: Deere. Cheapness is determined by P/E ratio. The lower the better. Be careful of earnings near zero that skew the ratio, one-time gains and losses, and pasts that aren’t indicative of futures (the more dynamic the industry, the more this is true).

Round 2: Growth

Advantage: Deere. Growth here is the trailing 5-year EPS growth rate. This trailing earnings growth helps put notoriously optimistic Wall Street projections in perspective.

Round 3: Operations

Advantage: Deere. Net margins shows the percentage of revenue that hits the bottom line. The more similar the business models, the more relevant the comparison.

Round 4: Balance sheet

Advantage: Deere. As with net margins, the debt-to-capital ratio is most relevant in comparing companies in similar industries. In this battle we give the nod to the lower-debt company, but attention should also be paid to the cost of debt, interest coverage ratios, and the stability of the business (the more stable a company’s operations, the more debt it can safely carry).

Round 5: CAPS rating

Advantage: Deere. A company’s CAPS rating is our community’s opinion of the stock. Deere has a slightly greater numerical CAPS rating than Caterpillar (even though they have the same number of stars). You can get more information on your stocks -- and our community’s opinions of those stocks -- by clicking over to CAPS.

Each of these five rankings need more context -- like, how these companies stack up against key competitors such as CNH Global (NYSE: CNH) and Illinois Tool Works (NYSE: ITW). But these basic numbers suggest that Deere is a better buy. What do you think? Let us know in the comments section below.

Top Takes from Real Money

2009-12-01T19:39:00.000-08:00

The RealMoney contributors are in the business of trading and investing all day on the basis of ongoing news flow. Below, we offer the top five ideas that RealMoney contributors posted today and how they played those ideas.

TheStreet.com brings you the news all day, and with RealMoney's "Columnist Conversation," you can see how the pros are playing it on a real-time basis. Here are the top five ideas played today. To see all that RealMoney offers, click here for a free trial. 1. Markets Today

By Marc Chandler

7:52 a.m. EST
Global equity markets are higher as concerns about Dubai World continue to recede after Dubai indicated the loan package being negotiated will be about half the size ($26 billion) originally expected. That and the softer yen helped boost the Nikkei 2.4% and bring total gains since Friday's Dubai-induced drop to 5.4%.
Elsewhere, consumer and technology shares led China, Hong Kong and South Korean bourses higher. European bourses are up, with PMI manufacturing data helping boost industrials, which together with financials are lifting the DAX and CAC by about 2% in morning trading.

The FTSE 100 is up 1.7% helped by basic materials and financials while early indications suggest U.S. markets will open higher. Today's developments have not helped UAE equity markets, which are still down, falling 3.6% to 6.4% today.
No positions.

--------------------------------------------------------------------------------
2. Potash Price Target Increased

9:54 a.m. EST
Fertilizer stocks are sharply higher today on a price upgrade for Potash (POT Quote). I've been bullish on fertilizer for over a year now as the economics of the businesses look very compelling going forward: You can defer but you cannot avoid fertilizer application. After loading up a couple of years ago, farmers are nearing inventory depletion, which means they will buy at market prices. Second, more people plus less arable land equals more fertilizer needed to feed them. And the best part is that names like POT, Mosaic (MOS Quote), Agrium (AGU Quote) and CF Industries (CF Quote) are quality blue-chip-type companies that are quite cheap on a forward-looking basis.

3. Gold

By Timothy Collins

12:12 p.m. EST I'm taking a small position in the December 119 puts on the SPDR Gold Trust (GLD Quote) for $3.25 or better. GLD has become very extended from its 20- and 50-day moving averages, and I don't expect gold to plummet, but I suspect a short-term pullback from this $1,200 level may happen. I wouldn't expect GLD to go below $112.50, but that area is my target for a pullback.
Short GLD via puts.

Fertilizer War Rages: CF, Terra, Agrium

2009-12-01T19:38:00.000-08:00

NEW YORK (TheStreet) -- CF Industries(CF Quote) said Tuesday that its investment bank, Morgan Stanley(MS Quote), will extend the deadline on its acquisition financing to Dec. 31, as the fertilizer maker continues to pursue its hostile takeover bid for rival Terra Industries(TRA Quote).

The extension on the funding, previously set to expire Nov. 30, was expected. Deerfield, Ill.-based CF, which successfully pushed three sympathetic directors onto Terra's board last month, has faced a defiant Terra. For its part, Terra, of Sioux City, Iowa, has refused to negotiate with its suitor, at least until CF brings a better price to the table. The Morgan Stanley financing comprises a $2.5 billion loan, which would cover more than 78% of the cash portion of CF's current offer. The bid calls for CF to pay $32 in cash and 0.1034 CF shares for each of the 99.83 million Terra shares outstanding.

CF continued in its attempt to apply pressure to Terra, saying in the press release announcing the extension that "it does not have any right to extend the financing commitments beyond December 31 unless a merger agreement with Terra is signed by that date."

Also in the press release, CF's chief executive, Stephen Wilson, said the vote at Terra's annual meeting signaled that its shareholders "want a sale of Terra in the near term and that the price we have offered forms the basis for final negotiations." He went on, "This has been confirmed to us in recent conversations with Terra stockholders. We are committed to moving forward with the acquisition of Terra."

Materials Stocks Moving the Markets Higher

2009-12-01T19:36:00.000-08:00

International Paper, Newmont Mining, Allegheny Technologies and U.S. Steel are clustered at the top of the S&P materials sector which is leading the broader markets higher after the open. The entire sector is up 1.3% versus 0.9% for the S&P 500 as a whole. The materials universe seems to be benefiting a bit from a bit of weakness in the U.S. greenback.

Morgan Stanley Raises Deere to “Buy”; $64 Target

2009-11-23T09:29:00.000-08:00

Morgan Stanley (MS) analyst Robert Wertheimer this morning raised his rating on heavy equipment maker Deere (DE) from “Equal Weight” to “Overweight,” arguing the overly negative sentiment on the stock presents “a unique opportunity” given the stock’s reasonable valuation.

Among the catalysts, farmers will need new tractors as corn demand rises 4% next year from flat this year, for both feedstock and ethanol demand. Brazil, meanwhile, may bounce back, offsetting a fall in tractors in the U.S., argues Wertheimer. His target is $64, and his EPS estimate for the fiscal year ending next October is $3.22 versus the consensus $2.71.

Zacks Earnings Preview: Deere

2009-11-23T09:28:00.001-08:00

Deere (NYSE: DE - News) is expected to post EPS of just $0.05, down from $0.81 last year. That low expectation sets it up for a positive surprise. Last time out they beat by 73.7%. However there has been no change in the estimate over the last month, and the stock has a neutral Zacks Rank of 3

Agco: A Growing Population Still Has To Eat

2009-11-19T20:49:00.000-08:00

Farm Equipment manufacturer Deere & Co. (DE) rose as high as 7% on Wednesday after CNBC pundit Jim Cramer touted agriculture as the next sector that could “break out” during his Tuesday night Mad Money show. In promoting “agriculture” as a possible break out play, Cramer cited an optimistic crop forecast from the U.S. Department of Agriculture and said that an agriculture rally would lift companies like Deere.

We agree with Cramer that agriculture could break out, but then again we see agriculture as a demographically supported sector that will always be in demand and should generally experience healthy long-term growth. Growing populations spur an increased need for for food, and mechanized machinery offers a good means for increasing production while offsetting costs. And, while Deere will certainly continue to benefit from increased worldwide agricultural production, we believe that Agco Corp. (AGCO) offers more room for upside returns.

Agco is the world’s third-largest maker of farm machinery, offering a full line of tractors, combines, hay tools, sprayers and forage and tillage equipment sold through four core brands – Massey Ferguson, Challenger, Fendt and Valtra – in more than 140 countries. The company was established in 1990 with the management buyout of Deutz Allis Corp. from the German-based Kloeckner-Humboldt-Deutz AG. The company, which went public in 1992 at an offering price of $14 per share, quickly became a global leader through market growth, development of “cutting edge agricultural solutions” and extensive acquisition efforts, including the 1994 takeover of the Canadian-based, world-wide tractor sales leader, Massey Ferguson Ltd. Agco derives 58% of its sales from Europe, Africa and the Middle East (EAME); 21% from North America; 18% from South America; and 3% from Asia Pacific.

The year 2008 proved to be a watershed for the company, as it posted record sales of $8.4 billion, a 23% increase over 2007, and earnings per share of $4.09, more than 60% higher than in 2007. The company attributed its strong performance to robust sales and high operating margins in the EAME region, a “return to profitability in the North American market, and record tractor sales–both for the company and within the industry as a whole–in South America.

Agco’s record breaking year ended with the global financial meltdown and a worldwide recession, which helped bring the company’s sales and earnings back down to earth in 2009. On Oct. 27, the company reported a third quarter profit of $10 million, or 12 cents per share, down from $99 million, or $1.01 per share, reported in third quarter 2008. For the full fiscal year 2009, the company expects net sales to decline 23% to 25% from 2008, and expects to see adjusted earnings per share in the range of $1.30 to $1.50. Company executives attributed the reduced sales and earnings to softened market conditions that led to reduced demand, higher inventories and lowered margins. The EAME region saw the weakest demand, followed by North America and then South America.

While Agco is not expecting any improvements in fourth quarter 2009, owing to continued “dampened worldwide industry demand for farm equipment,” the company remains quite optimistic about the long-term future. In particular, the company points to world population growth and the associated increased demand for agricultural products as primary drivers for future growth. In the EAME region the company sees long-term growth opportunities in Eastern Europe, primarily Russia, Ukraine and Kazakhstan, which are increasingly turning to Western-style agricultural practices using modern equipment. These countries have immense amounts of farmland, and Agco sees significant demand for agricultural technology, a demand that can be met when credit markets recover.

In Asia Pacific, the company expects to see continued market share growth in Australia and New Zealand, and is working to develop joint-venture opportunities in China that would give access to distribution and production capabilities for both the local market and sourcing to other regions. China is currently the world’s largest market for small, low-technology agricultural tractors, but Agco believes that farm consolidation in China will lead to the need for larger, high-horsepower tractors, which are the company’s core product.

And in South America, Agco has a strong market position in Argentina and Brazil, with the latter holding significant potential for farming expansion driven by its expanding role as a world leading exporter of soybeans, sugar cane and coffee.

On a demographic basis, Agco executives are probably right in thinking that world population growth will drive increased demand for agricultural products, and thus for Agco’s farm machinery.

However, population growth is not going to be a major factor in either Eastern Europe or China, as the countries of Russia and the Ukraine are experiencing negative population growth, while China and Kazakhstan are hardly growing at all. The labor forces of Russia and the Ukraine are already in decline, while those of China and Kazakhstan have peaked and are expected to go into imminent decline. So, even though population growth may not be a driver of increased sales in these countries, declining labor forces generally lead to higher labor costs, which should spur the demand for cost-saving mechanized solutions as offered by Agco products.

While Agco competitors, like Deere & Co. in particular, will also benefit from demographic influences, we feel that Agco‘s share price has the best potential for upside growth. The company is significantly less leveraged than Deere, with a long-term debt to equity ratio of 0.13, compared to Deere’s at 1.78. The company's shares, currently at about $29.65, trade at a Dec. 2009 P/E of 14.30, falling to 12.80 for Dec. 2010. This compares to Deere, currently trading at about $50.40, which trades at an Oct. 2009 P/E of 19.30, falling to 18.80 in Oct. 2010. Agco has a trailing 12-month P/S of 0.41, compared to Deere’s P/S of 0.86

CF Industries and Agrium Trade More Shots

2009-11-19T20:47:00.000-08:00

CF Industries dismissed the results of a tender offer by Agrium, a rival fertilizer maker, saying Thursday that the 63 percent of its shares tendered to Agrium did not reflect stockholder support for the terms of the offer.

Agrium quickly shot back, noting that its “best and final offer” for the company — in which CF shareholders would receive $45 in cash and one common share of Agrium for each CF share — was clearly superior to CF Industries’ desire to stay independent and take over Terra Industries, another fertilizer maker.

“CF quickly dismissed what we consider to be a compelling majority, so we don’t understand why they say their stockholders don’t support the deal,” Mike Wilson, Agrium’s chief executive, told DealBook on Thursday afternoon. “Hopefully, once they have a chance to reflect on it, they will realize that shareholders do want to do this deal.”

This is the second time that Agrium made a tender offer for CF Industries. In June, the company received the same percentage of support. CF argues that Agrium’s revised tender offer has failed to increase investor interest, but the bid has failed to convince management that a merger is in the best interest of the company.

“Agrium did not get any further support even though it increased its offer,” a CF spokeswoman told DealBook. “So this is a very tepid response.”

CF Industries has a poison pill, which would preclude Agrium from calling a special meeting and forcing the issue, meaning that CF’s management must agree if the two companies are ever to be joined.

But Mr. Wilson is hopeful that CF’s management will acquiesce in the end.

“The CF board, I am assuming, is pragmatic and Steve Wilson is a very reasonable person,” Mr. Wilson said, referring to CF’s chief executive. “Give them time to reflect on this and they will sit down with us to have a conversation.”

Mr. Wilson noted that Agrium had reached out to CF executives and planned to speak with them about the situation.

Meanwhile, CF may be holding out for the results of its own unsolicited takeover attempt. On Friday, Terra’s shareholders will vote on three board members proposed by CF Industries as part of its takeover efforts. If successful, the extra votes could help sway management to agree to CF’s offer — its seventh such offer this year.

What’s Up With Bunge? The Cramer Bounce ?

2009-11-19T20:44:00.000-08:00

$8.4 billlion (market cap) Bunge (BG) of White Plains, NY, one of the nation’s smaller agribusiness outfits, rose $3.73, or 6%, to $62.62, along with very heavy volume in its December call options, as Forbes notes this afternoon, including the December 65 calls, which have traded about 5,500 today, as of 1pm, according to Forbes. Is it the Cramer “bounce”? Jim Cramer went down a list of his favorite ag names on last night’s Mad Money, but he mentioned specifically Monsanto (MON) and Potash (POT), which are both up over 3%, which is nice but not the same as Bunge’s 6% rise. Is it acquisition speculation? Perhaps Archer Daniels (ADM) will buy Bunge? Or is it something esle…?

This POT Is Smoking

2009-11-19T20:41:00.000-08:00

Call it a game of follow the leader today. George Soros buys Potash [POT 113.17 -0.62 (-0.54%) ] shares and now everyone is clamoring to buy POT.

"It is interesting that the ‘ags’ are higher today even as equity prices are weaker, and they are stronger even as the dollar is a bit firmer of late," said commodity King, Dennis Gartman of the Gartman letter.

Last night's disclosure that billionaire investor George Soros increased his steak in the company by nearly 50%, picking up nearly one million shares in the last quarter, has sent the stock up by more than 2% today.

But while equity traders are excited, options traders are in a virtual tizzy, with investors buying a respective 11,000 and 8,000 calls in Potash at the 115-strike and 120-strike in the November expiry.

"What's interesting here is that much of this is coming ahead expiration. These things only have a few days left, so that's pretty bullish," said Mike Khouw, Options Action contributor and director of equity derivative trading over at Cantor Fitzgerald.

Agricultural Stocks And Precious Metals Miners Next Sectors To Take Off

2009-11-18T09:21:00.000-08:00

According To Commodities Money Management Expert

67 WALL STREET, New York - November 18, 2009 - The Wall Street Transcript has just published its TWST Small Cap Value Report offering a timely review of the sector to serious investors and industry executives. This 55 page feature contains expert industry commentary through in-depth interviews with highly experienced Money Managers

Topics covered: Small-Cap Value - Capital Preservation - Sovereign Bonds - Precious Metals - Value-Investing - Companies with International Exposure - US-listed Chinese Companies - Risk Limitation - Industry-Diversified Portfolios - Long-Term Value - Micro-Cap Companies - Turnaround Situations - Strategic Buying - Fundamental Analysis

Companies include: Bridgepoint Education (BPI); Compass Minerals (CMP); Flexsteel (FLXS); General Electric (GE); Gold Miners ETF (GDX); Hardinge Corp (HDNG); Northgate Minerals (NXG); Phillips-Van Heusen (PVH); Potash (POT); Adobe (ADB); Affiliated Computer Services (ACS); Agrium (AGU); Alliance Data Systems (ADS); American Society of Civil Engineers (ASCE); American Water Works (AWK); Atlantic Tele-Network (ATNI); BHP Billiton (BHP); Celanese Chemical (CE); CenturyTel (CTL); Cisco (CSCO); Clean Energy Fuels (CLNE); Consolidated Graphics (CGX); Dell (DELL); Dell Inc. (DEL); Dillard's Department Stores (DDS); Drew Industries (DW); Educational Development Corporation (EDUC); First Acceptance Corp (FAC); Forestar Group (FOR); Freeport-McMoRan Copper & Gold Inc (FCX); Fresh Del Monte (FDP); Goldcorp (GG); Hain Celestial (HAIN); Harbin Electric (HRBN); Huron Consulting (HURN); IBM (IBM); IMAX (IMAX); IMS Health (RX); Intel (INTC); John Deere (DEE); Kennametal (KMT); Kraft Foods (KFT); Lamar Advertising (LAMR); Microsoft (MSFT); Minefinders (MFN); Monsanto (MON); Mosaic (MOS); NBTY (NTY); Nature's Sunshine Products (NATR); Newmont Mining (NEM); Nobility Homes (NOBH); Omniture, Inc. (OMTR); Perot Systems (PER); Pfizer (PFE); Puplava Financial Services, Inc. (PFS); Puplava Securities, Inc. (PSI); SPDR Barclays Capital International Treasury Bond Fund (BWX); SPDR Gold Trust (GLD); Silver Wheaton (SLW); Syngenta (SYT); Tellabs (TLAB); Temple-Inland (TIN); Tempur-Pedic (TPX); Tesoro (TSO); Valero (VLO); Verizon Wireless (VZ); Whole Foods (WFMI); Xerox (XRX); Yamana (AUY).

In the following brief excerpt from just one of the in depth interviews in the Special Report, a top tier money manager discusses the outlook for the market for investors.

James J. Puplava has been President and CEO of Puplava Financial Services, Inc. (PFS) since 1985. For 12 years, he held a position as Branch Manager for LPL Financial Services, LLC. In 1996, he incorporated the broker/dealer firm, Puplava Securities, Inc. (PSI) and is its President. He also serves on the Board of Directors for Kimber Resources, Inc. of Vancouver, British Columbia,Canada. He graduated cum laude in History and Economics from Arizona State University. He then went on to graduate summa cum laude with a Master's Degree in finance and Accounting from the American Graduate School of International Management (Thunderbird).

TWST: What are some of these opportunities that you have found over the last few months and what are the reasons why you found the companies attractive?

Mr. Puplava: Let's just take the agricultural space. As I mentioned earlier, there's a trend-and it's global-of an ongoing decline in the amount of arable land per person. This ratio peaked in 1970, and by 1980, there was less arable land per person than in 1970; the same thing happened in 1990 vs. 1980, and 2000 vs. 1990. 2010 vs. 2000 is predicted to continue the trend. So there are only two ways to increase agricultural output. One is to increase the amount of arable land devoted to crops; or two, to increase crop yield. So seed companies like Monsanto and Syngenta which provide seeds and products that can increase crop yield, or fertilizer companies like Mosaic (MOS), Potash (POT), and Agrium (AGU) that also affect land arability and yield, or companies like John Deere (DE) that help large farms' automation to increase output per field acre of planted crops are attractive.

We think the agricultural space is very undervalued right now and I don't think the market is paying a lot of attention to it right now. Even though some of the companies in this sector are up, they have not participated to the same extent that you've seen in other sectors. So, we still like agriculture. Another thing we think is that we are heading for a train wreck in the area of energy. Somewhere around the year 2011 or 2012, all of the recent cancellations of projects by major oil companies and national oil companies will start to cause another bottleneck in supply. We think the oil service sector will be one of the first sectors to benefit if that happens. If oil prices go up to $85 per barrel-and we think we could be looking at over $100 oil by the end of next year-the expansion of profit margins in the oil sector will be very promising. We believe that space offers an attractive opportunity for investors.

TWST: What about precious metals and gold? Gold of course has been going up and up as the dollar has been depreciating. What is your outlook there and have you found any companies to play that field?

Mr. Puplava: We still think we have a good possibility of hitting $1,250 or $1,300 gold in the next 12 months. In the gold sector, one of the opportunities we like is with mid-tier producers that are going to be able to increase their production over time. A company like Newmont Mining (NEM), whose production has peaked and who is having difficulty of replacing their reserves and increasing their production is still a fairly solid bet, but I think the outside performance is going to be in mid-tier producers who have the ability to increase their production.

A company like Minefinders (MFN), which went into production in the third quarter of last year, will be growing their production to close to 200,000 ounces-this is a company that is up 100% over the past year, although they did take a severe downturn in the sell-off last fall. Other companies like Northgate Minerals (NXG), which, even though one of their bigger mines will be going out of production by the end of next year, will be producing 400,000 ounces. They're also brining new mines on line. Yamana (AUY), which already producing a million ounces, will be increasing their production considerably over the next couple of years.

If I can draw the analogy to the bull market in technology in the 1990s, if you were in IBM (IBM), the big behemoth in the technology space, you made money, but the real money was made in Intel (INTC) Microsoft (MSFT) and Dell Inc. (DELL) or at Cisco (CSCO). These smaller companies that were able to grow their topline and also their bottom line over the decade were the real place to be; in a bull market you want to be in those companies that have the ability to grow their topline. In the mining space, that means either increasing production or reducing the cost of production. So, we like companies like a Minefinders, a Yamana, or a Northgate; and then in the larger-cap space, we like companies like a Goldcorp (GG), which is now a major producer, but is still a company that is going to be able to increase its production over the next 3 to 5 years. .. from the Wall Street transcript, JAMES J. PUPLAVA

Potash Gets a Soros-Led Boost

2009-11-17T20:20:00.000-08:00

Shares of Potash Corp. of Saskatchewan (POT) hit a five-month high and led the Toronto Stock Exchange to higher ground Tuesday, after the hedge fund of billionaire investor George Soros increased its stake in the company by nearly 50%.

Soros Fund Management LLC purchased 970,368 shares of the world’s biggest fertilizer producer in the third quarter, bringing its total stake to 2.95 million shares, or 1% of the company, according to a report filed Monday with the U.S. Securities and Exchange Commission.

Potash Corp. shares jumped 6% to $115.81, making the company the biggest gainer among the S&P/TSX index. The benchmark rose 11.86 points to trade at 11613.12 late in Tuesday’s session.

Potash Corp.’s stock hit a 52-week high of $135 in the spring, off a low of $61.81 last December. Recent speculation that Australia’s BHP Billiton Ltd. could buy the company has helped lift the shares in the last month.

Soros Fund was the 19th largest shareholder as of Sept. 30. The biggest was Capital World Investors, a division of Capital Research & Management Co., which held 14.7 million shares, representing about 5% of the company.

Cramer's take on AG

2009-11-17T20:17:00.000-08:00

Cramer said that agriculture is the next sector that's ready to break out, after the Department of Agriculture raised its spot price forecast last week citing production shortfalls.

He said that seed giant Monsanto (MON Quote) confirmed the strength in the sector when it came out with positive news at its recent analysts meeting.
Cramer said Monsanto is the first "buy, buy, buy" in the group, now that the company can clearly see the light at the end of the tunnel for this long underperforming sector.

He also gave the nod to the fertilizer stocks of Potash (POT Quote), Agrium (AGU Quote) and Mosaic (MOS Quote). Cramer said that while Potash remains the cheapest in the group, his favorite remains Terra Nitrogen (TNH Quote) for its 6.4% dividend yield.

No agriculture rally would be complete without John Deere (DE Quote), said Cramer.
He said Deere no longer suffers from a strong dollar, and with 12 analysts rating the company a "hold," there's plenty of room for upgrades. Deere reports in just five days, and Cramer said he'd be a buyer of the stock ahead of any positive news the company is likely to report.

Cramer: Ag’s In Season Again

2009-11-17T20:15:00.000-08:00

The rolling bull markets that Cramer described last week continue, this time agriculture taking the lead. It all started when the Department of Agriculture, also last week, raised its crop price forecast because of production shortfalls.

Monsanto [MON 77.33 2.30 (+3.07%) ], the genetically modified seed maker, immediately took off. The stock has climbed to $77 from $73, after management told analysts that it expects to double its gross profits by 2012. CEO Hugh Grant also said that there’s no longer any need to cut earnings estimates as a result of herbicide Roundup going generic. The higher crop prices will help to put a floor in those estimates as well.

Also key for Monsanto is the rally in corn prices, which climbed 21% to $3.73 in October. December futures now trade at $4.27. The company makes the best genetically engineered corn seed, Cramer said, the commodity’s lading value has hurt Monsanto. But now it has the chance to catch, and that’s another reason Cramer recommended the stock.

Rising crop prices mean that farmers will want to produce more to take advantage. That’s where the fertilizers come into play. Cramer’s favorites? Potash [POT 110.60 6.42 (+6.16%) ] is the cheapest, he said, but he’s still partial to Terra Nitrogen’s [TNH 101.24 1.63 (+1.64%) ] 6.4% dividend yield.

And lastly, investors who want to play ag should buy Deere [DE 49.15 0.24 (+0.49%) ]. This stock may be flirting with its 52-week high, but DE is up just 28% for the year. That’s still down 48% from 20 months ago, Cramer said. Admittedly, Deere has had a habit of underperformance, but the Mad Money host is expecting an analyst change-of-heart. An upgrade from the 12 holds and one sell should send the share price higher.

How does he know the analysts will turn bullish? Because their outlook is too bearish for the premier ag manufacturer, Cramer said, which has a great overseas business that should be helped by the weaker dollar. Plus, he thinks the company during its Nov. 25 earnings report will tell investors that its construction and forestry division has finally bottomed.

Ag’s turn to carry the market has just started, Cramer pointed out, and these rolling bull markets have lasted for at least three months. So investors can “load up on a Monsanto or a TNH,” he said, or buy Deere ahead of its quarter.

Monsanto Confirms Guidance

2009-11-16T20:54:00.000-08:00

At its investor conference call, Monsanto Company (NYSE: MON - News) indicated that it will accelerate launches for its Genuity SmartStax corn and Genuity Roundup Ready 2 Yield soybean products. The company emphasized its growth strategy from 2010 through 2012, which includes three operational imperatives: the conversion to Genuity SmartStax in U.S. corn, the upgradation to the Genuity Roundup Ready 2 Yield platform in U.S. soybeans, and increased penetration in Latin America.

Monsanto now anticipates its new Genuity SmartStax corn seed will launch on more than 4 million acres in 2010, compared to its previous expectation of 3 million to 4 million acres. As a part of the accelerated adoption of Genuity SmartStax, the company unveiled a new portfolio of product upgrades for key U.S. corn segments.

For the Genuity Roundup Ready 2 Yield platform in U.S. soybeans, Monsanto increased its launch-year expectation for 2010 to 8 - 10 million acres, compared to its previous projection of 7 - 8 million.

These launches, along with increased penetration in Latin America, are expected create opportunities for the company to meet its 2012 financial and commercial targets.

Monsanto is committed to doubling its gross profit by 2012 from 2007 levels. The company expects 2012 gross profit of $8.6 - $8.8 billion, including $7.3 - $7.5 billion from the Seeds and Genomics platform.

Monsanto reaffirmed fiscal year 2010 EPS guidance in the range of $3.10 - $3.30. Also, the company is confident of achieving its free cash flow target of $900 million to $1 billion for fiscal year 2010. The Zacks Consensus Earnings Estimate for fiscal 2010 is $3.27.

Intrepid Potash: Investors Betting on a Fall

2009-11-16T20:45:00.000-08:00

Bearish traders are betting that next spring won't be a bountiful one for fertilizer producer Intrepid Potash (IPI).

optionMONSTER's systems detected a large trade at the March 22 contracts, where 3,022puts changed hands in a clear buying pattern. All of the trading took place in a 10-minute span yesterday morning, with the puts going for $0.60 and $0.65.

The activity dwarfed the average volume of two puts a day at the strike for the last month and was 23 times the open interest of just 132 contracts, indicating that that buying represented newly opened positions. Overall puts at all IPI strikes outnumbered calls traded by about 6 to 1, a further bearish indication.

IPI fell 1.27% Tuesday to close at $25.58. For the puts purchased Tuesday to turn a profit, the stock would need to drop at least 16.5% by their March 19 expiration date.

Last month the stock had finally seemed to break out of a range between $22 and $29 that had been in place since mid-June, rising sharply in the first three weeks of October. But it fell when Credit Suisse initiated coverage of the shares with an "underperform" rating.

Then in its third-quarter earnings release last Thursday after the bell, the company reported that profits plummeted 81% as fertilizer sales slumped. That led to a downgrade Monday from RBC Capital to "sector perform" from "outperform."

Potash: Will the Death of K+S Benefit the Sector?

2009-11-16T16:10:00.000-08:00

Over the past few months, pricing for potash and other fertilizer products have been coming down. This is due not only to lack of demand, but because buyers are in the drivers seat and skillful at negotiation prices. The news about K+S appears to confirm the trends that we have seen with potash and fertilizer companies. Said another way… they are not doing so well.
As such, we have been shorting and covering Potash (POT) successfully between $101 and $85 recently.
According to Bloomberg reports:
K+S AG, Europe’s biggest potash producer, needs to sell shares as early as this year to bolster finances after a slump in demand for the crop nutrient almost wiped out profit, UniCredit analyst Jochen Schlachter said. A rights offer would help the company retain its credit rating level after tumbling orders weighed on third-quarter earnings, Schlachter said. K+S’s debut bond sale in September will give the company confidence it can convince equity investors to come forward with fresh funds, analysts said.
Yesterday morning Potash was down by about 2%. By mid-day it started a mysterious rise into the afternoon. Hearing the strength in Agriculture names is being attributed to positive intraday comments out from a boutique firm on POT, MOS, AGU, CF, TNH. We are exiting the position Potash now, which we added Wednesday. The cover was close to the same price that we shorted and believe that there may be more to this story and are not interested in getting caught in a short squeeze.

The move on volume was a signal that there is more to this story. Perhaps the rumor-mill is talking about takeovers again – like we saw with Mosaic recently. Either way, it is a good time to reevaluate this name and step aside until whatever is brewing passes.

Potash Is Busting out All over

2009-10-20T11:44:00.000-07:00

As with gold 6 weeks ago, as with oil 2 days ago, now comes the liquidity chasing one of the few laggard areas... agriculture. Potash (POT) is breaking out in almost identical fashion to the other 2 commodities mentioned.

Last Thursday we saw a story that potash inventories declined for a 3rd consecutive month, although still at 142% above the 5 year average. However, by the time they get closer to average - these stocks most likely will have run a long way.

Potash Corp of Saskatchewan (POT) said on Thursday North American potash inventories declined for a third consecutive month, but inventories at the manufacturer level continue to remain well above average.

Potash inventories had risen steadily through the first-half of 2009, despite major production cuts, as farmers concerned by exorbitant pricing and hurt by the credit crunch had deferred fertilizer application.

In July, India signed contracts to import the bulk of its annual potash requirements at $460 a tonne, well below last year's contract price of more than $600 and the spot market price of $700 at the time.

The new Indian contract has brought some international buyers back into the market, but many buyers and distributors still remain on the sidelines and are waiting for Chinese importers to finalize their annual contract, as they believe that potash prices could fall further.

In a set of graphical data posted to its website, Potash Corp also indicated that potash spot market pricing was almost flat at just under $500 per tonne in September.
With a bevy of bad news in this sector 6+ quarters, sellers may finally be exhausted. Or it simply could be the chase of the underperformers as Ben Bernanke's money looks for the next thing to inflate. Can't tell anymore how much of these moves have to do with actual fundamentals and how much is so much paper currency chasing a fixed amount of stock certificates. Let's keep an eye on what price the Chinese offer for potash; if its favorable, it might set the stage for the next bull run in fertilizer (still among our favorite long term themes). Earnings are Thursday and apparently no one has any fear going into the report since technicals are all that matter in this market.

MOO is on sale

2009-10-19T08:09:00.000-07:00

Real-time Monetary Inflation (last 12 months): 2.5%*

Too bad the stock market doesn't operate like a grocery store. Grocers regularly run ads touting lower prices to draw customers into their stores. Market makers advertise "specials" too, but unfortunately, a many investors pass up these stocks or funds when they go "on sale."

There's just such a bargain to be had with the Market Vectors Agribusiness Fund (NYSE Arca: MOO) now. Well, to be exact, the bargain's in the options market for the exchange-traded fund. Option premiums are priced now at some of their lowest levels over the past 500 days.

By "priced," I don't mean in terms of dollars but, rather, implied volatility. Implied volatility reflects the option seller's assumption of the underlying stock's price variance over the life of the option.

Right now, with MOO trading just south of the $40 level, market makers are setting call prices with very long odds on upside moves. Just how long are those odds? Look back at the steep plunge MOO shares took in the summer of 2008. After bottoming in fall, the ETFs retraced about a quarter of the decline before leveling out. Market makers figure there's only a 2.2% chance the fund shares can extend that retracement to the $48-$49 level by late November.

Largely, that's due to MOO's dawdling between $36 and $40 since August. Dawdling doesn't go on forever, though.

November $40 calls were offered for only $1.40 per share this morning. These calls break even at expiry on Nov. 20 at only $41.40. Paying 3 1/2 cents a day for a lease on MOO seems like one of the market's current best buys. You don't even need a coupon.

*Note: The monetary inflation rate is calculated daily and represents the change in our proprietary index from this date one year ago. We update long-term inflation in real time as well. Since 1999, the compound annual growth rate in our index is 5.2%.

Agriculture Stocks May Be In for a Fertile Future

2009-10-19T08:07:00.000-07:00

Not long ago, before the dark days of the economic fallout, the increasing needs of the growing populations of the developing world were the name of the game. Indeed, for a time, we saw fertilizer and seeds become sexier stories than semiconductors and smart phones. However, as Newton would have it, for every great commodities boom, there must be an equal and opposite bust.

Cautious optimism has firmly taken hold of Wall Street. The US Dollar seems poised for a period of long-term weakness, and those once-sexy agriculture names may be primed for a renewed period of strength.

Last week, The Mosaic Company (MOS) reported their quarterly profits had fallen 92% year-over-year on 66% lower revenue. Still, shares traded up 4% the next day. This may not be unlike much of the financial sector, which rallied sharply off of huge losses last quarter due to a more positive outlook on the future.

Additionally, shares of Potash Corp. of Saskatchewan (POT), another ringleader of the sector, cut earnings estimates back on Sept. 21. However, after a moderate sell-off, shares have begun to rally.

If dollar weakness persists and news from developing nations continues to grow more positive, we may be primed for a nice end of year rally throughout the sector. Moreover, these formerly hot Ag names are not nearly as frothy as their financial and tech sector brethren.

For instance, while POT and MOS are up 36% and 26%, respectively off their March lows, the duo has been left in the dust by companies like Apple (AAPL) (up 129%), Google (GOOG) (up 78%), Goldman Sachs (GS) (up 91%) and Citigroup (C) (up 349%). As a result, money managers who did not participate in the rally in those uber-popular names may turn to MOS and POT because they can more easily justify starting a new position rather than chasing the over-heated runners.

The big day to watch out for is 10/22 when POT will release its numbers before the market opens. Although, as was the case for MOS, the numbers themselves are sure to be lower compared to last year, the importance of the report will come via guidance for 2010 and beyond.

Still, significant interim risks exist. Stocks like POT and MOS are sure to participate in any major sell-off if the vaunted correction ever does in fact come. Also, any short-term dollar strength will act to push the sector down as we saw last Friday following Ben Bernanke’s comments regarding potential for tightening fed policy. Until then, keep your eyes peeled and your noses pinched because these fertilizer names may be about to come back in a big way.

Terra Industries Rejects CF Takeover Yet Again

2009-10-01T19:37:00.001-07:00

Fertilizer maker Terra Industries ( TRA - news - people ) said Thursday that its board had rejected a takeover offer from rival CF Industries ( CF - news - people ) for a fifth time.

CF has turned up the heat recently in its relentless acquisition pursuit of Terra, saying earlier this week that it had bought about 7% of Terra's shares, valued at around $247 million. Its latest bid for the remaining stake in Terra was $4 billion.

Terra has continually rejected CF's advances, however, and labeled the latest offer as not being in the best interests of the company or its shareholders.

Terra CEO Michael Bennett said that "over the last nine months, our board has reviewed five proposals from CF--and each time the board has unanimously determined that a combination of our companies lacks compelling industrial logic and runs counter to Terra's strategic objectives."

To complicate matters even more, CF Industries itself has been targeted for a takeover, by fellow fertilized maker Agrium ( AGU - news - people ).

Terra shares fell 24 cents, or 0.6%, in morning trading Thursday, while CF shares were mostly flat.

The Bottom Line
We have avoided shares of TRA since our early June coverage began last year, when the stock was trading at $45.44. The stock has technical support in the $30 price area. If the shares can build further momentum, we see overhead resistance around the $37 to $40 price levels. We would remain on the sidelines for now and avoid this fertilizer "love triangle."

Terra Industries is not recommended at this time, holding a Dividend.com rating of 3.2 out of five stars. CF Industries is not currently recommended either, with a Dividend.com rating of 3.4 out of five stars.

Zacks Industry Rank Analysis Highlights: Agrium, CF Industries, Intrepid Potash, Mosaic and Potash of Saskatchewan

2009-10-01T19:34:00.000-07:00

Chicago, IL – September 30, 2009 – Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include Agrium (NYSE: AGU - News), CF Industries (NYSE: CF - News), Intrepid Potash (NYSE: IPI - News), Mosaic (NYSE: MOS - News), Potash of Saskatchewan (NYSE: POT - News) and Market Vectors Agribusiness (NYSEArca: MOO - News).

Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

This week: Fertilizer's Farming Problem

Hostile takeover attempts have kept fertilizer companies in the news. The acquisition talk has helped to overshadow a negative trend that should have investors concerned - ongoing cuts to full-year profit forecasts.
During the past 90 days, the Zacks Consensus Estimates have been revised downwards on several fertilizer companies, including Agrium (NYSE: AGU - News), Intrepid Potash (NYSE: IPI - News), Mosaic (NYSE: MOS - News) and Potash of Saskatchewan (NYSE: POT - News).

The most recent cuts were related to a warning from POT. The company predicted that its full-year profits would be in the range of $3.25 to $3.75 per share, instead of the prior guidance of $4 to $5 per share. The company blamed 'continued slow demand and limited restocking by fertilizer distributors' as the reasons for the revised forecast.

All Is Not Well on the Farm

The big reason why profit projections for fertilizer companies have been falling is not weaker demand for fertilizer, but rather why demand is down. After enjoying very strong profits in 2007 and 2008, many farmers are now seeing their incomes drop. Even after adjusting for a recent rebound, corn futures are down substantially from the start of the year. Wheat prices are also down. Soy prices have plunged over the past few months.

Supply is a big reason why. Though the spring planting season was delayed, favorable weather patterns resulted in bumper crops throughout the summer. At the same time, a decline in oil prices hurt demand for ethanol, which, in turn, impacted farmers.

Compounding matters is the economy. The worldwide contraction likely reduced food consumption. (Did you notice how there were not any headlines about food shortages this year?) Plus, consumers have looked for cheaper ways to feed their families. These factors have kept cattle prices weak, which contributed to weaker demand for grains.

Then there is the banking crisis. Bank closures affect rural areas worse than urban areas because of a lack of competition. In some rural communities, the only nearby bank was seized by the FDIC. Not to mention the increased difficulty of securing loans.

The net result is lower farm profitability. In late August, the Department of Agriculture forecast that farm profits would fall 38% this year. There has been relatively little since then that would cause a big, positive revision to that forecast.

Mergers Are the One Positive

The one positive for the group are the proposed deals.

CF Industries (NYSE: CF - News) announced on Monday that it bought 7% of Terra Industries' outstanding stock over the past 2 weeks. CF wants TRA shareholders to accept a merger agreement that would represent an approximate 15% premium over TRA's current share price.

However, Agrium wants to purchase CF. AGU recently extended the deadline for its acquisition offer of CF to Oct 22. (The offer represents approximately a 4% premium over CF's current price.) It is probable that if AGU were to buy CF, CF's acquisition of TRA would be called off.

Compounding matters is the fact that TRA recently announced a special $7.50 per share dividend, payable in the fourth quarter. CF's offer for TRA would be adjusted to reflect this dividend.

The merger activity makes shorting these stocks risky over the very near-term, even with the falling estimates. On the other hand, much of the upside from the proposed deals appears to be priced in. Overall, the downside risks outweigh probable short-term upside, particularly if neither acquisition offer is accepted.

Zacks Rank

IPI, MOS and POT are Zacks #5 Rank ('strong sell') stocks. AGU and CF are Zacks #3 Rank ('hold') stocks. They are all classified in Fertilizers, which has a Zacks Industry Rank of 206, placing the group near the bottom of the Industry Rank List.

Fertilizers stock also account for a significant portion of Market Vectors Agribusiness (NYSEArca: MOO - News), something to consider when evaluating this ETF.

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Sugar Fundamentals Sweeten Up

2009-09-29T20:33:00.000-07:00

Stronger demand and persistent rainfall in Brazil could push sugar prices to new highs.

Sugar prices soared on Tuesday even as a stronger U.S. dollar kept prices muted across soft commodities. Rain in Brazil has heightened concerns that the top sugar grower's yields won't be robust enough to meet strong demand from Mexico and India.

The sweetener has been the year's best-performing soft commodity with prices at levels not seen in more than 28 years. Supply issues have supported stronger prices -- Indian production faltered because a weak monsoon season left plantations dry and now Brazilian output is also threatened by weather. India, which swung from an exporter to an importer of sugar, has had to rely more heavily on Brazil for supplies and traders say Brazil has also seen stronger demand from Mexico and the U.S. Analysts expect sugar prices to hit 26 cents a pound.

Raw sugar for March delivery trading in New York gained 0.84 cent to settle at 24.94 cents a pound on Tuesday while the October contract, which expires on Wednesday, added 0.81 cent to settle at 23.46 cents. In London, white sugar futures touched a record level of $617.70 per metric ton before pulling back slightly to $616.

"Rainfall in Brazil is delaying the crush along with lowered sucrose levels; weak Indian output and still positive demand," said Barclays Capital analyst Sudakshina Unnikrishnan, who holds a near-term price target of 25 cents a pound.

Sugar shortages could mean good things for potash fertilizer producers since potash is essential to increase cane sucrose concentration, or the amount of sweetener than can be produced from cane. Brazil currently imports 90% of its potash needs, which could increase if more land is converted to cane fields.

Shares of potash companies closed Tuesday's trading session broadly lower with Potash Corp of Saskatchewan ( POT - news - people ) down by 39 cents, or 0.4%, at $90.69; Mosaic ( MOS - news - people ) off by 77 cents, or 1.6%, at $48.77 and Intrepid Potash ( IPI - news - people ) lower by 21 cents, or 0.9%, at $23.52.

What the Heck Is Wrong With Fertilizer Stocks?

2009-09-25T19:42:00.000-07:00

By all accounts, fertilizer stocks should be blazing hot. They sport some of the market's best historical and forward-looking fundamentals. Yet, the S&P 500 Fertilizer and Agricultural Chemical Index is only one of two (of a few dozen) industries with stocks that are - on average - in the red for the last six months.
Oh, don't misunderstand - they look great on paper.

Terra Industries (NYSE:TRA) and CF Industries (NYSE:CF) have trailing P/Es of 8.2 and 8.9 for cryin' out loud, and most of these stocks aren't far behind. So what's wrong with these stocks, and when will they shape up? The secret behind the answer is below, though the timing of the turn-around is still a little elusive.

Back to the Beginning
Just need to make sure we're all on the same page....

Fertilizer stocks basically doubled in price between mid-2006 and mid-2008, but don't assume it was anything the companies did. Fertilizer prices - potash and ammonia based ones in particular - went through the roof. On average, fertilizer costs increased by 83% during those two years. Why? For the same reasons any other commodity rallies - greater demand, limited supply and because manufacturers can charge that price and get it.

Stubborn to the Bone
Other commodity prices, stock prices and even crop prices for that matter don't move in sync. The CRB (commodity) index topped in early 2008. Stocks technically topped in late 2007. Corn, wheat and soybean prices all topped in the first half of 2008.

But fertilizer prices - and potash in particular - barely budged then. As August, 2008 turned into September, 2008, phosphate, potash and nitrogen prices were still on the rise. They didn't start to slide until late in 2008, and even then the price dip wasn't commensurate with the global economic implosion.

Though they'd never say so explicitly, companies like Potash Corp. (NYSE:POT), Syngenta AG (NYSE:SYT), and Mosaic Co. (NYSE:MOS) enjoy the fact that there are few major players in their arena, and as such they can collectively cut production (i.e. hold out) to maintain pricing pressure.

It worked, too. Potash prices only sank from a peak above $900 per ton in late 2008, to only the low $800 level earlier in the year. Only this year, farmers called these companies' bluffs by scaling back on potash and fertilizer usage, by as much as 30%.

That's also the reason Potash once again cut its revenue and earnings forecast (again). It's an epidemic that's not unique to that particular fertilizer company though.

Fast Forward to Today
The farmers are winning the war, and it's likely to come out of the hides of agricultural chemical producers. Translation? It may get worse before it gets better, for these stocks.

As evidence to my thesis, take the recent decision from Canpotex (which represents Potash, Mosaic and Agrium (NYSE:AGU)) to sell potash in India at $460 per ton. That's about half the price from late last year, and doesn't exactly say these companies are sticking to their guns.

Fertilizer companies may argue that the price break was given only because it was a massive 850,000 ton deal, though skeptics aren't hard to find. Those skeptical eyes are now on the lookout for a similar low price to Chinese customers. If China gets a bargain, that will be a sign that the farmers' hold-out has beaten the fertilizer companies'.

Bigger picture, it will also mean lowered margins and a diminished top line for the likes of Monsanto Inc. (NYSE:MON) and Mosaic.

The Outlook
So what may put an end to the fertilizer misery? Two things: the first is higher crop prices, and the second is lower crop yields (which actually go hand in hand). Neither is likely to be a reality in 2009 though, for three reasons.

It's too late to bother with fertilizer this season, which means demand won't likely improve until at least early 2010.
Corn prices - and most crops - are considerably lower than they were at the beginning of the year; many farms simply can't afford to utilize fertilizer.
Despite the lack of fertilizer use this year, crop yields are actually up this season; corn yields are close to hitting peak levels. It hurts corn prices, but forces the question "who needs fertilizer?"

Today in Commodities: The Almighty Buck

2009-09-25T19:41:00.000-07:00

I’m calling an interim bottom, made yesterday on the US dollar index at 76.05 on the December contract. Prices gained 1% today, the first hurdle that must be overcome to confirm my feeling is a close above the 20 day moving average at 77.50. Our first target is 78.50, again on the December contract.

How we are trying to take advantage of this is short cocoa, short Euro-currency and short silver for clients. How did those work out today? Cocoa was lower by just shy of 3%, a move of $890 on a futures contract, the Euro gave up 1%, a move of $1875 on a futures contract, silver was lower by 3.5%, a move of $3000 on a futures contract.

We should have listened to our own advice on oil, as soon as $69 gave way more selling came into the market. We could see a trade down to $62 on this leg. We own December call spreads and will either use a powerful rally to cut losses or look to leg out, stay tuned. Natural gas continues to creep higher on what I believe as more short covering. We would like to see a 40 plus cent pullback to re-establish longs in December or January for clients.

Sugar could follow oil lower so we may suggest lightening up on longs if we get a pop in the next few sessions. Longer term we like being long but as we’ve suggested in past blogs, manage your trades… do not fall asleep at the wheel.

As seen above, the correction in metals we predicted appears to be underway. We’re not suggesting booking profits on shorts or getting long yet!

Treasuries were higher, some clients remain long 30-yr bonds. We expect a trade above 122′00 in coming weeks on the December contract.

Profit taking in live cattle, conservative traders may want to re-establish puts against their long December futures. Corn and wheat traded higher, that makes 3 higher days in a row for corn and 2 on wheat. We suggest long exposure via futures and options for clients. The KCBOT/CBOT wheat spread has yet to develop, keep profit objective at 20 cents premium to KCBOT.

Key reversal in the stock market yesterday as we see the S&P making its way to 990 and the Dow to 9150. Perhaps some speculators bought puts or hedged off their portfolio??

Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Past performance is no guarantee of future trading results.

Potash: Suffering from an Unrelenting Price Squeeze

2009-09-25T19:40:00.000-07:00

We have been watching as Potash (POT) and other fertilizer suppliers are having a hard time negotiating with some of the world’s most influential customers. The problem started earlier this year when India pressed hard and negotiated a deal way below market for the products. Demand was so low that Potash and others had no choice.

In their recent conference call after the abysmal earnings report, management expected prices to come down and predicted a soft market. That was reinforced after the market close last Friday when they again lower estimates. Now it looks like other customers have the idea that bargaining will work as demand is weak. This is not a good sign for companies in this industry.

From the looks of it, prices are falling fast for potash and other fertilizer products through at least the end of 2010. Obviously the sharp decline in prices will erase any hopes for top line earnings growth. We continue to maintain a SELL for the sector and in particular Potash (POT).

From Bloomberg News

Sept. 22 (Bloomberg) — China may skip price negotiations to buy potash supplies this year on weak domestic demand, an analyst at Scotia Capital Inc. said. Buyers may instead start talks for 2010 contracts in the next two months, wrote analyst Na Liu in a report dated yesterday. Liu forecast contract prices for next year at $395 a metric ton, FOB. China is the world’s biggest potash importer.

China has not concluded annual negotiations on prices this year as demand has weakened with farmers replacing potash with other compound or organic fertilizers. Prices of the nutrient tumbled from a record last year as farmers around the world cut purchases because of slumping grain prices.

“Domestic potash sales remain very sluggish and real transaction prices keep slipping,” Liu wrote in the report. The country was a net exporter of potash in July, she said.

China’s consumption of the crop nutrient has declined following a rally in prices and it will take more time for demand to recover, Liu said. “Demand can only revive from the current level into next spring’s planting season,” Liu said. Producers including BPC and Canpotex, a trader representing North American potash suppliers, last year raised the price for Chinese customers to $567 a ton, excluding freight costs.

Potash Corp. of Saskatchewan Inc. and other producers agreed in July to sell to India for $460 a ton, or about 26 percent below last year’s price. Still, contracts to supply potash to China are likely to be signed before the year-end and may spur demand in Europe and other markets, Russian producer OAO Uralkali said Sept 8. It’s “reasonable” to expect a cut compared with last year’s price given market conditions, Acting President Mikhail Antonov said.

PotashCorp Reduces 2009 Earnings Guidance

2009-09-19T19:41:00.000-07:00

Listed: TSX, NYSE Symbol: POT
SASKATOON, Sept. 18 /CNW/ - Potash Corporation of Saskatchewan Inc. (PotashCorp) today announced revised earnings guidance of $3.25-$3.75 per share for full-year 2009, shifting from a range of $4.00-$5.00 per share(1) provided in July 2009. The change primarily reflects lower than forecasted potash sales volumes due to continued slow demand and limited restocking by fertilizer distributors around the world. Over the past 12 months, nearly 20 million tonnes of potash production has been curtailed by global producers. PotashCorp will continue to keep a tight rein on our production until demand returns in the new year. Our 2009 earnings are still expected to be among the best in company history, despite an anticipated decrease of 60 percent in year-over-year potash volumes and an 85 percent decline in our combined phosphate and nitrogen gross margin. Earnings for third-quarter 2009 are expected to be at the low-end of the $0.80-$1.20 per share guidance range previously provided.

Potash inventories that can be measured in the retail chain - this excludes less easily identified inventories in China - have been largely eliminated and potash levels in soils around the world have been significantly reduced. This creates a progressively higher risk to crop yields as soil fertility is continually diminished. While the immediate impact has been masked by good weather and residual soil nutrient levels in markets with healthy long-term fertilization and agronomic practices, such as the US and Australia, yields for key crops in several other major growing regions are expected to be substantially below 2008 levels. A significant rebound is required to address this situation and we expect 2010 global potash demand to be in the range of 50-55 million tonnes.

"Food production is an unending and long-term business," said PotashCorp President and Chief Executive Officer Bill Doyle. "Decisions related to fertilizer use today inevitably impact crop yields - and soil needs - for years to come. Although there are fluctuations in fertilizer demand, there is an essential need for our products that is based on science. The potash, phosphate and nitrogen being mined from the soil by current crops must be replaced to protect the world's future food production. As farmers around the world begin the lengthy process of replenishing nutrients in the soil, we anticipate a new wave of demand growth that will allow us to once again demonstrate the full potential of our company."

Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer enterprise by capacity producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash and third largest in phosphate and nitrogen; animal nutrition, with the world's largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and the world's largest capacity for production of purified industrial phosphoric acid.

Citigroup Analyst Pessimistic on Fertilizer Industry

2009-09-19T19:40:00.000-07:00

After holding off from buying fertilizers last year, industry analysts have expected farmers to return to their potash-buying ways this fall, but a recent survey among growers and distributors has Citigroup Global Markets less than confident this will happen any time soon.

P.J. Juvekar, analyst with Citigroup, recently conducted a survey, talked to fertilizer distributors, and even went to a farming convention in Illinois.

"Based on our discussions it seems that the fall fertilizer application season is likely to be weaker than expected," he said in a note to clients. "Our earlier thesis that farmers could not skip application indefinitely ... still stands, but application may be delayed past fall."

Several factors concern Mr. Juvekar, including the fact that farmers may be harvesting their crops two to four weeks later than usual, delaying and limiting the fall fertilizer application window.

"Every month that passes without normal volumes increases the risk a producer will break in price, which is what happened in July when Silvinit lowered price sto US$460 a tonne," he said. Silvinit agreed to a contract with India earlier this summer.

As well, while most expected China to agree to terms with producers shortly after India did, so far that has not happened. There is definite risk that China will also use volume as an incentive for lower prices.

At the same time, while producers have historically been able to hold rank on pricing, the recent Silvinit deal shows there are cracks in the facade.

"In the recent weak demand environment, some producers have shown a willingness to place volume over price to generate cash. Potash is a global commodity and pricing resolve is only as strong as the weakest link in the chain," he said.

Yet another problem is shrinking income for many farmers as corn prices have plummeted 25% year-to-date, with the U.S. Deparment of Agriculture forecasting farmer net income to fall 38% to US$54-billion. The current price of US$3.15 a bushel is also not enough, as one Illinoisian farmer claimed to need prices at US$4 a bushel to break even.

All of this has left Mr. Juvekar with a rather pessimistic view of the industry in the short term. He has cut the forecasted potash export price in for 2010-2011 to US$400 a tonne from US$450.

He is also dropping ratings on both Potash Corp. of Saskatchewan Inc. (POT) and Mosaic Co. (MOS) to Hold from Buy while slashing target prices to US$98 and US$54 from US$115 and US$62 respectively.

Dow Keep Agri Business

2009-09-19T19:39:00.000-07:00

EI DuPont De Nemours Co. (NYSE: DD - News) recently said it expects the performance of its seed business, Pioneer Hi-Bred, to grow more than 15% year over year in 2009. The company’s seed business has gained more than 2% of share in the North American seed corn market, which is the largest industry gain in the current year. It gained 3% in the North American soybean market and 5% in the Canadian canola seed market.

Considering a 15% growth, the seed division should generate revenue of $4.6 billion, compared with $4 billion in 2008. The business had accounted for roughly 13% of Du Pont’s total sales of $30.5 billion last year.

DuPont is the world’s second-largest chemical company. While its Agricultural and Nutrition segment is expected to be the key performance driver, continued weakness in demand across most of US markets offsets overall growth for the company. DuPont’s second-quarter profit of $417 million, or 46 cents per share, missed the Zacks Consensus Estimate of 53 cents, due to lower sales volumes and adverse currency impact.

Meanwhile, rival Dow Chemical Co. (NYSE: DOW - News) also said it does not plan to divest Dow AgroSciences in the near term. Rumors were rife earlier this year that Dow might spin off this fast-growing agricultural unit or team it up with another agricultural company in order to reduce its over $16 billion debt from the Rohm & Haas acquisition.

Dow AgroSciences, which makes genetically modified seeds, herbicides and pesticides, has seen robust growth in recent years and added to the parent company’s first-quarter profit. Currently, the unit is facing tough competition from the industry leader Monsanto Co. (NYSE: MON - News). Dow is also planning to pay off the loan from the sale of its Morton Salt and Optimal businesses. The deal is expected to close by the end of the year.

We maintain our Neutral recommendation on Du Pont and Dow Chemical.
zacks.com

Thumbs Up for Agrium - Desjardins

2009-09-07T19:47:00.000-07:00

Agrium Inc. (AGU) got the thumbs up this week from Desjardins Securities analyst John Redstone, who initiated coverage on the fertilizer company, with a BUY rating and C$75.80 price target.

"Agrium is well positioned to benefit from improving fertilizer markets through its current operations and from its acquisition of CF Industries," said Mr. Redstone in a note to clients.

On the macro front, he said fertilizer markets should recover in the short term because of curtailed production, low soil nutrient levels and rising foodstuff prices. Longer term, they will benefit from rising demand from developing countries, low inventories and a limited supply-side response.

Mr. Redstone said Agrium has several key advantages to help it benefit from improving fertilizer markets, including a long potash reserve life, in-house production of ammonia, and low sulphur and natural gas costs.

"Furthermore, Agrium continues to demonstrate its determination and ability to grow by acquisition," he wrote.

As part of his bullish valuation, the analyst has included Agrium's hostile and yet unresolved bid for CF Industries (CF).

Our valuation of AGU assumes this transaction is successful, and that AGU acquires all the outstanding shares of CF for US$40.00/share (US$2.008b total through debt financing) and issues an additional 49.2m shares (on top of its existing 158.1m fully diluted shares outstanding).

We have also assumed that AGU’s estimate of US$150m/year in operational synergies is realized.

As of late June, roughly 62% of the outstanding shares of CF had been tendered to the AGU offer, but CF remains unwilling to engage in dialogue with Agrium.

Ways to Trade the Ag Space

2009-09-07T19:46:00.000-07:00

A reader asked in an email, "if one wanted to invest in Grains, what symbols [do] you recommend?"

I don't know if I would necessarily recommend any symbol. The two stocks that I am most familiar with in this arena are the Rogers Agricultural Index (RJA) and the PowerShares DB Agriculture Fund (DBA). I once owned RJA so let's start with that one first.

RJA is an ETN designed to track the (Jim) Rogers Agricultural Index, which itself is a blend of a whole slew of soft commodities in various weights. You can get more information from its prospectus. The important item to note on RJA is that it is basically a promissory note, not an ETF, and does not hold any actual commodities or contracts. It is a liability of the bank or organization that sponsors it. In light of the financial crisis, this is an important consideration. Also, while RJA promises exposure to a wide range of commodities, the weighting may dampen any price run-up. For instance, when rice made its huge run, RJA barely moved as rice was less than 5% of the index at the time.

DBA is an actual ETF that is basically equal-weighted in four commodities: wheat, corn, soybeans and sugar. Obviously, this leaves investors out in the cold if rice or orange juice makes a big run but conversely, sugar is on a tear and the 25% (actually 31% according to ETFConnect) weighting gives investors better exposure to price moves. I would advise interested readers to read the prospectus to find out more about how the fund buys its contracts and how that might affect investor returns.

My inclination at this point would be to play the ag space via companies in the supply chain which can range from equipment suppliers like Caterpillar (CAT) to fertilizer producers like Mosaic (MOS) to seed companies like Monsanto. I feel more comfortable making buy/sell decisions on companies, where I can estimate intrinsic values, than with commodities where I have less of a base to judge fundamental value.

Keep in mind that each investor should determine the appropriate strategy for his own portfolio. What works for me may not be right for you and vice versa..seeking alpha

Market Vectors Agribusiness ETF Takes a Hit on UBS Downgrades

2009-09-07T19:25:00.000-07:00

UBS Investment Research (UBS) downgraded two top agriculture companies Mosaic Co (MOS) and Potash Corp (POT) to Neutral from Buy on Friday. This comes after the Department of Agriculture says profits for U.S. farmers will plunge more than expected this year, dropping 38 percent from 2008 as the recession erodes demand for crops, livestock and dairy products.

These downgrades put pressure on the Market Vectors Agribusiness ETF (MOO) which holds top stakes in the two companies. The ETF (MOO) primarily invests in equity securities of U.S. and foreign companies primarily engaged in the business of agriculture. The ETF has enjoyed nice gains since its November 08 low.

We have included a list of the top holdings within the ETF:

TOP 10 HOLDINGS (MOO) ( 60.41% OF TOTAL ASSETS)

Company Symbol % Assets
ARCHER DANIELS MDLND (ADM) 5.78
DEERE CO (DE) 4.85
Komatsu Ltd. N/A 4.55
Kubota Corporation N/A 4.54
MONSANTO COMPANY (MON) 6.08
POTASH CP SASKATCHEW (POT) 8.82
SYNGENTA AG ADS (SYT) 7.8
MOSAIC COMPANY (THE) (MOS) 7.6
Wilmar (F34.SI) 5.67
Yara International (YAR) 4.72

The tale of two grains

2009-09-06T17:06:00.000-07:00

The price of corn is down, and it is all on supply news.
This spring, farmers put 87 million acres of corn in the ground, and even though planting was late (and, therefore, so was crop development), the current buzz is that it's going to be a bumper year.

As of the August 12 World Supply and Demand Estimates, the USDA is expecting 12.76 billion bushels of corn to be harvested this year, up from last year's 12.1 billion bushels. The jump comes both from the number of acres harvested (80 million this year, versus last year's 78.6 million) and projected yield increases (159.5 bushels/acre, compared with last year's 153.9). Of course, a successful harvest will depend on the weather staying warm and dry, but if it does, corn supplies are projected to hit a record 14.5 billion bushels.

All this means that there's plenty of corn to go around - probably more than needed, especially since the demand picture looks so dismal right now. Demand in the feed sector remains weak, and ethanol demand is questionable at best. Between tight credit and sub-$70 oil, the push for more ethanol is more of a nudge than a shove, unlike the days when oil was over $100 and credit was easy.
However, there is one question mark in the demand picture: high-fructose corn syrup. That compound, much maligned in "The Omnivore's Dilemma" and currently starring in a feel-good PR campaign by the Corn Refiners Association, is a cheap substitute for sugar. With sugar now over 23 cents a pound and possibly on its way higher, we could see new demand, as some food producers increasingly switch over to the lower-cost corn-based sweetener.

Soybeans have a different story, and it's as simple as ABC: Argentina, Brazil and China. But first, we need to start at home.
The U.S. soybean supply is at its lowest in five years, with beginning stocks sitting at 110 million bushels in July. Compare that with last year's 205 million bushels, or 2007/08's 574 million bushels, and you can understand why analysts call the market tight.
Adding to last year's supply problems, Argentina suffered a drought and had a dismal harvest for the 2008/09 crop year (ending in June). Only 32 million tons of soybeans were harvested - a 33% drop from the 2006/07 crop of 47.5 million tons. (Brazil also suffered lower soybean production due to drought, although it wasn't hit nearly as bad as Argentina.)
But planting season is coming - and Argentinian and Brazilian farmers have a couple of things going for them as they plant. First of all, soy is the cheapest crop to plant, as opposed to corn or wheat, and the credit crunch is still alive and well in the agricultural sector. Second, the rains are back. Weather forecasters expect El Nino to drop much-needed rain all over Argentina's growing regions by November, right in time for planting. Third, farmers in South America know that the less-than-exceptional U.S. harvest means that all eyes will turn to Argentina and Brazil for their soybean supply.
One country sure to be watching the U.S. harvest is China. Last May, China's demand for old crop soybeans made headlines, and there have been reports of sales for delivery in the 2009/10 marketing year that began on Tuesday. It won't stop here; analysts expect China will continue its usual pattern of stocking up on soybeans during price decreases.
This year, acres devoted to soybeans increased to 77.7 million. Even though crop development is a little slow compared with the five-year average - due to the late planting and unusual summer weather - production should be good. If the weather remains warm and dry while the beans finish developing and are harvested, yields are estimated to be 41.7 bushels/acre or 3.2 billion bushels - roughly 240 million bushels more than last year.
Betting On The Weather

These last few weeks of crop development and harvesting are heavily reliant on the weather. Good weather means high corn and soybean yields - but low prices. Bad weather means lower yields and difficulty drying out a wet harvest, but also the possibility of higher prices. No wonder all eyes are on The Weather Channel.
We've got farmers hoping for dry weather and no frost, so they can get their crops in - and at this point, the bigger, the better for them. Traders, on the other hand, are watching the weather reports as well - but for bad news. If you look at the charts, you can almost tell if traders are betting on frost or not, because at this point in the season, that's what moves the curve. As Chad Henderson from Prime Ag Consultants said about corn's performance last week:
"Everyone who bought last week was betting on a frost. We didn't get it."
As of Wednesday, the weather picture for the next few weeks seems in favor of a good harvest, which corn and soy prices reflected. As of 2:16 p.m. on Wednesday, December corn had dropped 2.25 cents to $3.17 a bushel on the day, and November soybeans dropped 3.2 cents to $9.522 a bushel.
Already Looking Ahead

This year's corn and soybean harvest isn't even complete yet, but that hasn't stopped farmers from planning what to plant next year. A recent survey by Farm Futures indicates that next year, farmers may move away from planting soybeans and plant more corn - even though the corn/soybean price ratio favors soybeans.
Of course, since much of this year's crop is still in the field, plans may change, especially as the market prices factor in the harvest. More than any other time of the year, this critical pre-harvest period is really just a bet on the weather.

Burned By Morgan Stanley, Potash & More

2009-09-04T19:15:00.000-07:00

They looked like hot stocks. So how are the traders playing Morgan Stanley, Potash and more now that they’ve been burned?

Steve Grasso

On July 20th the Governor thought a move higher in the casino space was nothing but a losing bet. At the time he said, “Hold back on MGM , LVS and other casino stocks purely on technical basis. I think you've got to hold back on the casino names."

As it turns out Lady Luck was not smiling on this trade. Over the last month shares of MGM are about 7% higher while Las Vegas Sands soared nearly 40%. What does Grasso have to say for himself?

We've seen a nice rally in almost every stock since that time, he says. I'd still stay away from casinos.

Joe Terranova

On August 6th The Liquidator turned bullish on a bank. “If you look at Morgan Stanley , the trade has been to buy every dip this year. Why? Because the stock moves higher on every dip subsequent to when the bad news comes out,” he said.

Unfortunately this trade left Terranova weeping all the way to the bank. Since his call shares of Morgan have plunged 10%. So what does he have to say for himself?

Morgan is having trouble at $30, but I still like it, says Terranova.

Tim Seymour

On August 19th The Ambassador thought a fertilizer company was well positioned for growth “A company like Potash ,” he said. “They've got this new paradigm where the price of their underlying commodity triples or quadruples.”

As it turns out this fertilizer trade was anything but fertile. Since he said to get long shares of Potash are down about 7%. So what does he have to say for himself?

I'm sticking with this trade, says Seymour. I still believe in it.

In case you're wondering, Guy Adami gets a pass this week.

______________________________________________________

Mosaic Takeover Speculation Heating Up Again

2009-09-03T19:49:00.000-07:00

The rumor mill is centered on Mosaic (MOS) again, as there is renewed interest in a possible takeover bid. In mid-July when we first wrote about this topic (Mosaic’s Potash Attracts Vale’s Eye), the rumors originated in a Brazilian newspaper that mining giant Vale SA (VALE) was looking to diversify into potash mines. There was also a side note, that BHP Billiton could potentially have an interest as well. After that double-digit rally in July, a spokesperson from Vale dismissed the possibility of a deal because of concerns it might strain relationships with the government, also saying that they would prefer to grow organically for the time being.

Wednesday, Mosaic is up about 2% even as the rest of the market is selling off. Options trading on Mosaic has been exceedingly bullish today as well with the September $60 calls accounting for about a third of contracts sold.

“Trading in Mosaic Co. options jumped to a six-week high on renewed speculation that North America’s second-largest potash producer will be acquired. The shares climbed as much as 4.8 percent, halting a seven-day retreat.

Volume in bullish call options rose to 92,419, more than quadruple the four-week average and six times the number of puts. Calls give the right to buy a security for a certain amount, the strike price, by a given date. Puts convey the right to sell. The stock gained 1.7 percent to $49.29 at 1 p.m. New York time, after losing 11 percent since Aug. 20.

The most-active contracts were September $60 calls, which more than doubled to $1.25 and accounted for more than a third of today’s trading. A buyer at that price is betting that the stock rises to at least $61.25 before the options expire Sept. 18. The stock hasn’t closed above $60 in 11 months.”– from Bloomberg.com

The Bloomberg article makes the case that the options activity and strength of the stock today is based solely on renewed takeover speculation. If that is the case, with Vale on the sidelines, the likely suitor would by BHP Billiton. At this point neither BHP nor Cargill (majority owner of Mosaic) have confirmed that talks have taken place. However, there is one other possible explanation, Potash’s (POT) CEO Norbert Steiner told Reuters that prices for potash fertilizer are likely “bottoming out”. This would likely give a boost to all potash firms, but Mosaic seems to be getting a particular bounce above the rest.

At this time we are reaffirming our Undervalued rating for Mosaic, and even though lower potash prices have eroded profitability the company still has a bright future. We reject the idea of investing on the basis of rumors, but we believe it is priced attractively so as to attract interest from bidders.

Coverage on MOS

2009-09-02T08:08:00.000-07:00

CIBC world markets initiates coverage on MOS with sector perform rating

Today in Commodities: The End Is Beginning

2009-09-01T19:10:00.000-07:00

Really it is just the beginning of September, but historically the next two months are not kind to equity markets. Will this year be different? VIX spike and talk of bank failures… I think I would rather be on the sidelines than in a market that has bounced 50% while the circumstances have not justified that type of move, but maybe that is just me. Equities hit today; on this leg we target 975 in the S&P and 9075 in the Dow.

US dollar up 60 ticks now above the 20 day moving average and the Aussie down 160 ticks now below the 20 day moving average. RBA holds at 3.0%. See previous posts.

Oil broke the short term trendline, a trade below $68 should mean a trade lower. This bodes well for the Crude : natural gas ratio but not so good for the recent December $75/80 call spreads purchased for clients. Stay tuned. In natural gas we advised clients to buy back their November $6.50 call spreads today for $300 and to hold the $5.50 calls. Clients are down on the trade, expiration 44 days from today.
Silver and gold traded remarkably well considering all outside markets. We suggest long exposure in silver.
Sugar pared its losses closing down only 15-23 ticks. We still like being long March 10′ contracts. Agriculture puked today with a lot of red on the screen. We had already cut losses on the soybean spread from last week but today was a nail biter for those who stayed with it, as new crop gained 58′4 cents or $2920 on old crop (zsx9-zsu9). We feel a early frost scare is worth having light long exposure in grains, to date we’ve been wrong. Take profit on your October lean hogs but stay with the December for more upside. We advised clients to roll their long December live cattle/ short October live cattle into a long in February and to stay short October. With October being the front month we feel this spread will work better.

Fast Money on MOS

2009-09-01T19:02:00.000-07:00

Najarian said to keep an eye on Mosaic

CF Industries Files Lawsuit

2009-09-01T18:55:00.000-07:00

Deerfield-based CF Industries Holdings Inc. (NYSE: CF - News) filed a lawsuit against Terra Industries Inc. (NYSE: TRA - News) to force the company to convene a shareholder meeting for a business combination being pushed by CF.

Fertilizer maker Terra responded that its board has decided to hold an annual meeting on Nov. 19. The company had postponed the meeting when larger rival CF Industries launched an unsolicited bid in April this year. In its statement, CF noted that Terra's last annual general meeting (AGM) was held nearly 16 months ago and according to law, AGMs must be held on an annual basis.

Terra repeatedly rebuffed CF’s takeover bid stating that the offer substantially undervalues the company. CF’s all-stock offer for Terra Industries has expired and the company does not plan to extend the offer because of opposition from Terra's board. However, CF stated that it continues to pursue Terra.

CF is offering a 35% premium in an all-stock takeover bid. The company raised its offer this month to 0.465 shares of CF for each share of Terra, which makes and sells nitrogen products. In January, CF had made an offer valued at around $2.1 billion, raising it in March to about $2.2 billion.

CF is a holding company for CF Industries, which sells nitrogen and phosphate fertilizers. CF is itself fending off a hostile bid from larger Canadian rival Agrium Inc. (NYSE: AGU - News). CF maintains that Agrium's offer undervalues the company. CF also believes that Agrium intends to distract its hostile takeover bid for Terra.

Analyst downgrades Mosaic

2009-08-29T20:08:00.000-07:00

Analysts at UBS Investment Research on Friday downgraded its rating for The Mosaic Co. from buy to neutral, citing the rising stock price and more modest expectations for a rebound in potash demand.

New York-based UBS also cut its price target for Plymouth-based Mosaic (NYSE: MOS) to $53 per share, down from $55. The fertilizer producer’s stock closed at $51.38 on Thursday.

Analysts Don Carson and David Silver now project earnings of $3 per share for full-year fiscal 2010, down from its previous estimate of $3.15. They also reduced their full-year 2011 earnings forecast to $4.30 per share from $4.45.

In a research report, the analysts said potash supply “remains plentiful at the producer level, but we detect few signs of upward movement in potash prices in any major markets.”

They expect prices to remain stable for the next several quarters, while volume starts to recovery. “A return to meaningful producer pricing power appears at least one to two years away.”

UBS also downgraded one of Mosaic’s leading competitors, Saskatoon, Saskatchewan-based Potash Corp. of Saskatchewan Inc. (NYSE: POT), from buy to neutral.

Sector Snap: Fertilizer cos. drop on farmer woes

2009-08-29T20:04:00.000-07:00

NEW YORK (AP) -- A near-record corn crop is going to cut demand for fertilizers, said a UBS analyst Friday as he downgraded two fertilizer companies, just as the government sees U.S. farmers' incomes dropping.

Related Quotes
Symbol Price Change
ADM 28.62 +0.41

AGU 48.37 +0.61

BG 68.75 +0.16

CF 82.12 -0.06

IPI 24.70 -0.17

The Agriculture Department said Thursday that farmers' net income will drop 38 percent to $54 billion this year from 2008. That's $9 billion below the average net farm income over the past 10 years.

Dropping incomes mean farmers will have less money to spend on fertilizers.

Moreover, the U.S. government expects a record soybean crop this year and the second-biggest corn crop ever -- despite a 30-35 percent decline in shipments of potash, a key fertilizer, according to UBS analyst Don Carson.

"This makes us less confident of a complete recovery in potash consumption," he said in a research note. Potash prices have also stabilized at lower levels after India made a major purchase at $460/tonne in early July and Brazil spot sales were $525/tonne. At the time of the India buy, spot prices were between $700 and $750 per tonne. Carson doesn't expect prices to head back up soon.

He downgraded Mosaic Co. and Potash Corp. of Saskatchewan Inc. to "Neutral" from "Buy."

Mosaic shares fell $1.84, or 3.6 percent, to $49.54, while Potash dropped $2.02, or 2.1 percent, to $90.60. Other fertilizer companies were also lower. Agrium Inc. slipped 31 cents to $47.45; CF Industries Holdings fell $1.11 to $81.07; Intrepid Potash Inc. declined 40 cents to $24.47; and Terra Industries Inc. fell 41 cents to $32.66.

Other agribusiness companies were mixed. Crop producer and biofuel maker Archer Daniels Midland Co. rose 54 cents to $28.75, while Monsanto Co., the world's biggest seed company, dropped $1.82 to $82.80. Bunge Ltd., which has fertilizer, seed and consumer foods units, dipped 6 cents to $68.53.

Buy Puts for Potash

2009-08-24T19:50:00.000-07:00

BUY LOW AND SELL HIGH is the most basic investment advice, and yet most people have a hard time following it.

When stock prices are high, investors like to chase stocks higher, paying top dollar for what they perceive as an opportunity to make top dollar on a high-flying stock.

When prices are falling, investors have a hard time admitting that the stock they thought was a high-flyer is now a dud. Few investors have the discipline to admit a mistake and lock in a loss by selling.

But here's an opportunity for investors comfortable with options trading to use the tricks of the pros. Barclay's Capital told clients this morning that shares of Potash (POT) are richly valued compared to agricultural commodity prices as well as to potash, a type of salt that is used as fertilizer to improve water retention and crop yields.

Venu Krishna, a Barclay's derivatives strategist, recommends shorting Potash stock, or buying puts on the stock. The firm likes December 90 puts.

The stock was recently about $98, up more than 100% from its 52-week low of $47.54.

At the same time -- and this part of the trade is best left alone if you don't identify yourself as a trader on your tax returns - - pairing the trade with a ratio of long soybean futures and Standard & Poor's 500 Index.

The layered trade is so complicated and capital intensive that it can be completed by only a few people on Wall Street. We mention the trade in its entirety only to reveal the institutional footprints in the market.

According to Barclay's, potash, the commodity, is expensive based on its historical relationship with corn and soybean prices, and also to its peers. Meanwhile, July potash inventories were 127% higher than the five year average.

"Due to its higher cost, potash demand is suffering much more than other fertilizers as farmers try to reduce cost," Krishna said.

Major emerging markets, including India and China, negotiate fertilizer prices. India got a 26% price cut from Potash in July. India will pay $460 a ton for its annual potash needs, compared to $600 a ton in the previous year. India negotiated its rate when the spot price was $700.

China is currently having discussions with major producers. Traders will find it hard to ignore prices that are so much lower than in the commodities market.

Despite this overhang, Krishna says Potash trades at a 16.5 multiple of forward enterprise value/EBITDA, or earnings before interest taxes depreciation and amortization, compared with about 10 for its peers...barrons online

CF Extends Terra Deadline

2009-08-24T19:49:00.001-07:00

CF Industries Holdings (NYSE: CF - News) announced today that it has extended the expiration date of its exchange offer for all of the outstanding shares of Terra Industries (NYSE: TRA - News) common stock until Aug. 31. The offer was scheduled to expire at 5:00 p.m. Eastern time on Aug. 21.

Since January this year, the Illinois-based fertilizer company has been wooing its Iowa-based rival Terra in an all-stock deal for a total of $2.1 billion. Under the original proposal, each common share of Terra would have been entitled to receive 0.4235 shares of CF. However, Terra rejected the offer for the second consecutive time on Mar. 5, saying it undervalued the company.

In response, CF increased its offer price on March 9, to $2.77 billion based on $27.50 for each Terra share and again on March 23, to $3.07 billion based on $30.50 each by agreeing both times to an exchange ratio of not less than 0.4129 and not more than 0.4539 of each of CF’s share.

The third offer of $30.50 per Terra share was a premium of over 85% to Terra’s stock price before CF made the original offer on Jan. 15. Terra, however, again rejected CF’s offer the next day, citing the same reason of undervaluation.

In the beginning of August, CF sweetened the deal by raising the fixed exchange ratio to 0.465 shares of CF Industries for each Terra common share. This would bring about $1 billion in cash to shareholders of the combined company after the proposed deal closes. It would also distribute 5 million contingent future shares to CF stockholders. The contingent shares would be converted into CF stock if the stock trades at more than $115 per share over a certain period after the completion of the potential transaction.

As of Aug. 20, about 11.5 million shares of Terra common stock had been tendered into the exchange offer. CF anticipates the proposed bid to produce annual cost savings of $105 million–$135 million.

We recommend the shares of CF as Neutral.

Monsanto Fights Back

2009-08-20T19:55:00.000-07:00

There's mud getting slung down on the farm. Monsanto (NYSE: MON) and DuPont (NYSE: DD) have escalated their squabble over DuPont's license of Monsanto's Roundup Ready gene.

Monsanto gave DuPont a license to use the technology but doesn't want its competitor to combine the trait with a similar gene developed by DuPont. That's understandable, considering that the combined seed would likely result in crops superior to Roundup Ready alone. DuPont cried foul, claiming Monsanto has a monopoly. Monsanto went to court last May, but the war of words has just begun.

Monsanto's CEO Hugh Grant reportedly sent a letter to DuPont Chairman Charles Holliday Jr. this week characterizing DuPont's allegations that Monsanto has a monopoly as "misleading to the public and a serious breach of business ethics far beyond honest competitor behavior." Them's fightin' words.

Monsanto is upset that DuPont is supporting organizations that are attacking Monsanto. It's is kind of an easy target, and even some of my fellow Fools aren't too fond of the company.

I'm not convinced that Monsanto is to blame here, though. It's not like Monsanto isn't capable of getting along with its rivals. It's developing a new corn combining its traits with those of Dow Chemical (NYSE: DOW). Monsanto has also swapped licenses with Syngenta (NYSE: SYT) and has a deal with BASF to discover new traits.

It seems to me that the patent holder should be able to license -- or not -- the technology to whatever companies it wants and be able to limit the scope of those partnerships. No one seems to be complaining that Pfizer (NYSE: PFE) combined its Lipitor drug with a high blood pressure drug to make Caduet, but it hasn't licensed the blockbuster drug to any of its competitors that I know of..Brian Orelli

Deere outlook overshadows Q3 beat; shares fall

2009-08-19T09:33:00.000-07:00

* Fiscal 3rd qtr better than expected

* Full-year forecast implies disappointing 4th qtr

* Shares down more than 3.5 pct (Recasts; adds details from conference call, updates shares)

By James B. Kelleher

CHICAGO, Aug 19 (Reuters) - Deere & Co (DE.N) warned on Wednesday that it would barely break even in the current quarter as continued weakness in its construction equipment business and sharp drops in overseas demand for farm equipment forced it to cut production by a third.

The news sent its shares down more than 3.5 percent.

The warning came as Deere reported a higher-than-expected third-quarter profit as better-than-expected performance in its core agriculture machinery business, as well as its in-house finance arm, helped to offset sluggish sales in construction and forestry equipment.

The world's largest maker of tractors and harvesters, which said it was taking "pretty significant shutdowns" during the quarter in anticipation of lower demand next year, reported a third-quarter profit of $420 million, or 99 cents a share, down from $575.2 million, or $1.32 a share, last year. Sales fell 24 percent to $5.89 billion.

Analysts, on average, had expected the company to report a profit of 56 cents per share on sales of $5.27 billion.

Analyst Eli Lustgarten of Longbow Research called the results "a clean beat," although 20 cents of the earnings came from nonoperating items, including a lower tax rate.

Moline, Illinois-based Deere reiterated its forecast for a full-year net profit of "approximately $1.1 billion."

Since Deere has already reported earnings of $1.1 billion for the first nine months of the year, the guidance implied a break-even or possibly even a marginally unprofitable fiscal fourth quarter.

"They're burying the fourth quarter with these production cuts," Lustgarten said. "And so their guidance is for a marginally break-even quarter."

During a conference call to discuss the earnings, Deere said the production cuts would result in one-third fewer production days during the quarter.

Because the fixed costs associated with those idled plants would not go away during the shutdowns, analysts warned, however, the company's actions were likely to pressure margins in the current quarter.

Analysts had expected Deere to report a fourth-quarter profit of 33 cents a share, according to Reuters Estimates.

Deere also cut its forecast for corn prices for the 2009-2010 crop year to $3.40 a bushel, down from a previous forecast of $3.80. That is up from its current price of about $3.12 a bushel, but down 59 percent from the record highs touched last summer.

Since farm equipment purchases are highly correlated with crop prices and the cash receipts they represent, that was likely to translate into less demand for the tractors and harvesters produced by Deere and its top rivals, Fiat Spa (FIA.MI) subsidiary CNH Global NV (CNH.N) and Agco Corp (AGCO.N).

With demand from farmers easing, that puts added pressure on Deere's construction and forestry unit, which competes with Caterpillar Inc (CAT.N), Komatsu Ltd (6301.T) and Terex Corp (TEX.N) and has seen demand drop sharply as a result of the worldwide downturn in building.

Deere shares were down about 3.7 percent, or $1.72, at $43.37 in late morning New York Stock Exchange trading. (

Bumper Corn Crop Puts More Pressure on Potash Industry

2009-08-14T09:49:00.000-07:00

Investors hoping for a turnaround in the potash industry in the near-term appear to be out of luck as the U.S. Department of Agriculture has revised its corn production estimates to near-record highs.

The USDA has upped its forecast for corn in 2009 to about 12.8 billion bushels, compared with previous estimates of 12.3 billion and also higher than market consensus of 12.5 billion bushels. If the USDA estimates hold out, this bumper crop would be the second-largest on record.

Figures from the Ontario Corn Producers' Association show a bushel is typically about 56 pounds or 25.4 kilograms, and contains 72,800 kernels.

Even worse for potash producers, weather conditions are expected to be favourable for crop growth in the next few weeks, putting even more pressure on the fertilizer industry.

However, John Redstone, analyst with Desjardins Securities, does see cause for optimism.

Corn futures have held steady at or above the $3.25 a bushel mark, above the June low of $3.04. While less than half of the high of $7.64 a bushel price from last year, the latest corn prices are a good sign.

"This leads us to believe corn prices may have bottomed," Mr. Redstone said in a note Thursday. "The prices for foodstuffs have to increase before farmers are compelled to increase their purchase of fertilizers."

Mr. Redstone expects potash prices to rise to $600 a tonne by 2011, as pricing for corn and other foodstuffs firms up.

Analyst Bullish on Fertilizers Despite Droughts

2009-08-13T18:26:00.000-07:00

Remarks from a bullish analyst are helping fertilizer stocks gain on the S&P, but the outlook remains hazy.

Thomas Weisel initiated its coverage on the fertilizer industry today with a sector rating of Favorable. The analyst noted that though uncertainty remains, it appears that the industry may be nearing a cyclical bottom, and cited an attractive risk/reward ratio for its positive outlook. Fertilizer stocks are up across the board today, some by upwards of 3%.

As a whole, the Agricultural Chemical and Fertilizer Stocks Index is up by 1.8% today as major benchmarks trade relatively flat. Fertilizer stocks are now averaging 4.2% better than the S&P 500 over the last month.

The analyst also initiated individual coverage on four of the five largest U.S.-listed fertilizer companies. Mosaic (NYSE: MOS - News) and Potash (NYSE: POT - News) received Overweight rankings. Intrepid Potash (NYSE: IPI - News) was ranked Market Perform, and the firm's most pessimistic outlook was for Agrium (NYSE: AGU - News), which it ranked Underweight. All four are taking part in today's fertilizer rally.

China Green Agriculture (AMEX: CGA - News), Mosaic, and KMG Chemicals (NASDAQ: KMGB - News) are all up by more than 3% in the rally. The latter two have added 30% in the last month while China Green Agriculture has more than doubled.

There are some things to consider before diving into the fertilizer market on the Thomas Weisel recommendation. According to an August 11th report by Bloomberg, a weak monsoon season could weigh on the demand outlook for potash. Srikant Jena, India's minister of state for chemicals and fertilizers was quoted stating, "The drought situation is very bad and obviously demand for fertilizer will fall."

German salt and fertilizer company K+S AG saw its second-quarter operating profit plummet by -95%. The company said 2009 earnings would fall sharply according to Reuters. K+S chief executive Norbert Steiner said, "There is no sign yet of normalization of demand." Investors remained optimistic for the stock, sending shares up by more than 2% overseas.

Monsanto (NYSE: MON - News) was the sector's most popular stock among professional investors in the second quarter. 145 Pros counted the stock among their top-15 U.S.-listed equity holdings at the end of Q1.

As of this writing, the Agricultural Chemical and Fertilizer Stocks Index is one of the 35 cheapest tickerspy Indexes by P/E ratio, with an average of 13.6.

New 13F filings are starting to trickle in for Pro holdings at the start of Q3, so be sure to check tickerspy.com in coming weeks for additional coverage of Pro holdings across all industries.

Fun and informative, tickerspy.com is a free investing website where you can track multiple stock portfolios and compare against 250 proprietary Indexes tracking themes from nanotech to agriculture to precious metals. Best of all, tickerspy.com lets you spy on the portfolios of nearly 3,000 Wall Street institutions and hedge funds and see graphs of their performance. Try tickerspy.com today and find out how you stack up against investing legends like Warren Buffett!

Food Industry Is Hungry For Profits

2009-06-24T21:00:00.000-07:00

Companies fight to lure bargain-hunters with the best deals, but the strategy doesn't always do the trick.

ConAgra Foods is preparing to report fourth-quarter earnings on Thursday morning, but analysts warn the popularity of grocery stores' private-label brands could chew into profits. According to one stockpicker, however, the company's lower input costs are helping it close the pricing gap.

After grocery store operator Kroger announced a meaty 12.7% boost to first-quarter profits aided by its strong private-label business, which contributed 35% of the quarter's sales, investors questioned whether popular food lines are getting squeezed by bargain-hunting shoppers. UBS analyst David Palmer doesn't think this will be a problem for Omaha, Neb.-based ConAgra Foods ( CAG - news - people ), which does some private-label business but is largely driven by its popular brand portfolio that includes Chef Boyardee, Swiss Miss and Hunt's

According to Palmer, moderating input costs have resulted in narrowing price gaps between private-label and ConAgra products. On Tuesday, he upgraded the company to "buy" from "neutral" based on his belief that the company's improved execution has been undervalued by the market.

"We believe ConAgra should benefit from moderating inflation, improved innovation and pricing, a value-oriented portfolio and macro trends benefiting eating at home," Palmer said. "While we continue to think that additional investments need to be made in ConAgra's brands, we are encouraged by recent initiatives to do so, and do not believe our call depends on the company immediately becoming 'best in breed.' "

ConAgra shares closed Wednesday's trading session up by 25 cents, or 1.3%, at $20.03. Analysts polled by Thomson Reuters have been expecting fourth-quarter earnings of 41 cents a share and sales of $3.3 billion.

The food business has become increasingly competitive as companies fight to convince consumers that they provide the best values on everything from edibles to household basics

Watch Potash Grow

2009-06-23T20:15:00.000-07:00

The steep selloff in the fertilizer maker's stock has been wildly overdone.

SHARES OF Potash Corp. of Saskatchewan (ticker: POT) have plunged by about 25% in just the past week and a half. The world's largest maker of potassium-based fertilizer has cut production and capacity drastically in the face of a global recession and has suffered as traders book profits on recent gains made in the commodity complex.

Moreover, commodity prices fell sharply Monday after the World Bank cut its 2009 projection for world growth to a decline of 2.9% from a decline of 1.7%. And on Sunday, the International Monetary Fund's director said the IMF expects to cut its world growth outlook.

But make no mistake. The tiniest of green shoots might nourish the fertilizer maker's outlook. After gaining $2.76, or 3%, this morning, to $90.03, the stock fetches 14 times this year's expected $6.44 per share, and nine times 2010's $10 estimate.

The industry, including Potash, built up capacity enormously last year after several years of tight supply. That, along with rising fuel prices (natural gas is the biggest cost of production for Potash), was passed along to farmers in the form of a doubling of potash prices.

When the crisis hit, farmers, unable to get credit, held off on fertilizer use, idling capacity for Potash and everyone else.

Barrons.com writer Naureen Malik deftly anticipated Potash's fall, going negative on the stock in April of 2008, and then suggested picking up the shares around $69 last October, which turns out to have been a very good call.

There's room for more upside from here.

But Potash and the industry have been cutting production dramatically, and when an eventual upturn comes, economics can work in Potash's favor.

Just look at the first-quarter income statement for the three months ended in March: Sales fell 51%, while natural gas and transportation and freight costs all fell less sharply, resulting in a 73% year-over-year drop in gross profit. That implies profit can surge when farmers buy again, and buy they will.

Fertilizer is a global business, and food production can be expected to rise with global population growth and with economic development. Agriculture is expected to remain fairly robust in the coming decade according to the U.N.'s Organization for Economic Cooperation and Development, which put out a tome on the matter last week.

This is why it's important that Potash has investments in businesses in China, Chile, and other parts of the developing world, where fertilizer can help yield more from crops, from which everyone, producers and consumers alike, should benefit.

While the company expects fertilizer use to drop by 20% in the U.S. market, China, for example, is expected to increase fertilizer use this year.

After cutting 5.5 million tons of annual production since August, Potash's capacity is just one-fifth of the 47 million tons the entire fertilizer industry is expected to ship worldwide this year. That means tight supplies could cause prices to surge again when fertilizer use picks up, feeding Potash's cash flow.

With $2.8 billion in debt and $255 million in cash, Potash not only has the balance sheet to hold out till the market rebounds, it should be able to support its modest 10-cent-per-share dividend, which has steadily risen over the last two decades.

Monsanto Is A Screaming ‘Buy’, Says Analyst

2009-06-23T20:07:00.000-07:00

Investors will be closely watching results from Monsanto [MON 79.30 1.18 (+1.51%) ] Wednesday before the bell. What will they reveal about the ag trade?

It seems investors will be keen to see if Monsanto, the world's biggest seed maker, can show a clear path to greater profitability.

“I expect to hear their margins are doing better and better,” says BB&T analyst Frank Mitsch on Fast Money.

And Laurence Alexander of Jefferies is looking for profits of $1.20 per share slightly higher than the $1.18 per share average.

What’s the trade?

Alexander has a 'buy' on the stock but also says uncertainty will likely make the stock somewhat volatile and keep it fairly range bound.

That's practically bearish when compared to what Frank Mitsch tells the Fast Money desk. "Monsanto is a screaming buy at current levels," Mitsch exclaims.

I also love the name but I find it hard to determine a fair valuation, says Pete Najarian. However I’d say there’s much more upside to the stock than downside.

Agrium extends deadline for CF Industries offer

2009-06-23T20:02:00.000-07:00

CALGARY, Alberta (AP) -- Agrium Inc. said Tuesday it extended the deadline to acquire rival fertilizer company CF Industries Holdings Inc. after 62 percent of CF shareholders tendered their shares to the deal valued at more than US$4 billion.

The offer, which expired at midnight Monday, has been extended to July 22.

"CF stockholders have sent a resounding message to CF's Board that they support Agrium's offer," Agrium President and CEO Mike Wilson said in a statement."These are extraordinarily strong results, particularly given that CF's poison pill and other defense mechanisms are still in place and we urge CF's Board to respect this clear message from its stockholders."

Deerfield, Ill.-based CF Industries reiterated Tuesday that it thinks Agrium is undervaluing the company.

"Contrary to Agrium's assertions, the tender offer results do not change the facts that Agrium's offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues," said Stephen R. Wilson, chairman, president and CEO of CF Industries.

The company's board and management have consistently rebuffed Agrium's takeover attempt, despite two increases to its original bid. Last week, Agrium threatened to walk away if a "compelling majority" of CF Industries shareholders didn't show their support for a deal.

Canada-based Agrium is offering $40 per share, as well as a one-for-one share swap, an offer that it says represents a 59 percent premium to CF's closing price before the offer was first made public on Feb. 24.

RiskMetrics Group, an advisory firm, has recommended CF Industries' shareholders approve a deal with Agrium.

Meanwhile, CF Industries is trying to buy another fertilizer company, Terra Industries Inc., and has launched a fight to unseat that company's board. The Sioux City, Iowa, company has repeatedly rejected CF Industries' advances.

Shares of Agrium gained $1.85, or 4.8 percent, to close at $40.74, while CF Industries shares jumped $3.56, or 5.1 percent, to $72.88.

Agrium extends deadline for CF Industries offer

2009-06-23T20:01:00.000-07:00

Agrium to press forward with hostile CF bid

2009-06-23T20:00:00.000-07:00

Agrium, a Canadian fertiliser maker, said on Tuesday that 62 per cent of the stock of US rival CF Industries had been tendered in support of its $3.85bn hostile takeover bid for the company.

Based on its ability to win support over a majority of CF’s shares through the tender offer, which had been set to expire on Monday night, Agrium said it would extend its deadline by another month in an effort to generate further backing.

But while Agrium said it was ready to meet immediately with CF to execute a binding merger agreement, it was not clear the results of the tender offer would compel such talks.

CF has consistently refused Agrium’s entreaties and opted to focus instead on its own hostile takeover bid for Terra Industries, a smaller US fertiliser supplier. It claims Agrium’s offer is an effort to distract its shareholders and scuttle the attempted transaction with Terra.

“Contrary to Agrium’s assertions, the tender offer results do not change the facts that Agrium’s offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues,” said Stephen Wilson, CF’s chief executive.

Agrium has little leverage to force a deal because CF has installed a “poison pill” anti-takeover provision that could make a hostile bid all but impossible to execute through a tender offer. Agrium also missed a deadline earlier this year to nominate directors to CF’s board, so it would have to wait until the company’s next annual meeting to launch a proxy context.

CF, furthermore, restructured its initial offer for Terra to eliminate a vote by its shareholders on that deal, making it more difficult for CF shareholders to voice their opinions on which deal the company should pursue.

Agrium had said it would continue to pressure CF into talks over a deal if a “compelling majority” of CF’s shares were tendered.

The offer currently consists of $40 in cash and one common share of Agrium for each share of CF, valuing CF shares at $79.58 as of midday on Tuesday. The shares were trading below that level at $71.58.

6 Stock Picks Ahead Of The Correction

2009-06-23T19:59:00.000-07:00

Investors are struggling to determine if stocks are heading for a big correction and the bearish case certainly got a boost on Monday from comments made by a widely followed economist on CNBC.

During an interview on Squawk Box Europe Nouriel Roubini, also dubbed "Dr. Doom, said "I see the risk of a double-dip, W-shaped recession… towards the end of next year."

Rubini singles out high prices at the pump and inflation as having the potential to be very serious drags on the economy. In addition, Rubini also feels that the next earnings season could be very, very disappointing with companies unable to support their current valuations.

As a result he says, “I believe there's going to be a significant market correction for equities."

Of course Roubini’s forecasts can be a little gloomy but he’s not alone in his call for a correction.

If you watch the show regularly you know that Fast Money trader Guy Adami has been pounding the desk for days about signals he considers bearish. "The path of least resistance appears to be lower," he says over and over.

And even OptionMonster Jon Najarian – who tends to be something of an optimist – suggests preparing for a correction, though Najarian expects the slide to be mild.

If stocks are heading for a correction, which names should you get on your radar right now?

Tim Seymour: I think Potash [POT 92.08 4.81 (+5.51%) ] and Intrepid Potash [IPI 26.29 1.65 (+6.7%) ] are both within 5% of being terribly attractive.

Guy Adami: If JPMorgan [JPM 33.57 0.70 (+2.13%) ] gets down to $28 I think it’s interesting.

Karen Finerman: I’m a buyer of Transocean [RIG 72.98 0.62 (+0.86%) ] down 5%.

Joe Terranova: I like Goldman [GS 141.19 4.18 (+3.05%) ] and Freeport McMoRan [FCX 47.18 2.00 (+4.43%) ] .

Another Potash Production Cut - Fertilizer Names Get Composted

2009-06-23T19:57:00.000-07:00

We are back to the world of thesis versus reality. It's a world we've been living in since I started this blog - people front running a recovery that constantly is out of reach; it's been Groundhog Day (the movie) repeatedly. In the thesis world speculators drive stocks up on the basis of what they believe will happen in the future, while ignoring the facts on the ground - even things the CEOs themselves say. Because they know better as forecasters of the future. In the reality world, companies report... well, reality. I won't bother you with the FedEx (FDX) report this morning which is a lot better proxy on the economy than 99.9% of government reports because it's an actual company that has to deal with the real world, unlike the fantasy of government numbers. For about the 4th? time in the past 18 months, they are pushing guidance down...

As you know the commodity trade has been the big winner... very crowded; it's 2007 all over again. If only these companies would not open their mouths and report on reality we could keep bidding up stocks in this group for no reason other than "everyone else is buying so I must too". Mosaic (MOS) and Potash (POT) have been reporting poor numbers for about 3 quarters now, while constantly saying the turn is "just around the bend". Then the next quarter the turn has not come. I have now come the point I doubt their words because they keep saying one thing, and another happens. Today, the fertilizer names are taking a hit because Potash (POT) says they are cutting back production yet again.... but not to worry, this will just lead to even larger demand "soon" (Groundhog Day?) Emphasis mine:

PotashCorp today indicated a further reduction in 2009 potash production of 0.8 million tonnes, bringing curtailments this calendar year to 4.7 million tonnes and total curtailments to 5.5 million tonnes since August 2008.

Lagging demand due to an extremely slow US spring season and extended negotiations with offshore buyers are the reasons behind the shutdowns. However, with the world's soils and supply chain nearing depletion after almost a year of deferral, we expect demand to return in second-half 2009 as Brazil approaches its major application season and India and China inevitably return to the market.

This unprecedented period of draw-down throughout the supply chain, coupled with the expectation of lower global crop production and higher crop prices, is expected to lead to an even stronger rebound in 2010.

It's a darn shame these companies have to report actual business metrics because if they did not, speculators could run these stocks up another 50-100% based on thesis. Because when you create reasons for stocks to go up based on opinion, rather than fact... no price is too high.

I say all this with the background of potash being my favorite long term commodity - and I own these names...

Commodity Analyst Jurgens Bauer on Coffee. Cocoa and Orange Juice

2009-06-23T19:56:00.000-07:00

Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. Well, today we have a floor trader – yes, you don’t find them too often – Jurgens Bauer of PitGuru.com and soft commodity analyst from the Intercontinental Exchange.

Jurgens, thanks very much for coming by; really, it’s great. Like I said, you’re sort of an anachronism, and you and I go back. We know each other from the days of the COMEX and the NYMEX back in the ’80s, so it’s great to see you again; I haven’t seen you in a long time.

It’s great to have you here because you cover an area … the soft commodity area – we’re talking about coffee, sugar, cocoa, orange juice, cotton … really a specialized focus there. First, I’m very curious to find out: What’s it like down on the floor? Everything is electronic nowadays.

Jurgens Bauer, PitGuru.com/soft commodity analyst, Intercontinental Exchange (Bauer): Well, it’s a lot different from the old days; the futures pits are electronic. I’ve always been an options guy, and one of the things that’s still available for floor traders is the option markets, so we still have pits.

Norman: Why is that? Is that because the options are just such a specialized thing that you really need to have a human, somebody in there to work with?

Bauer: Don’t I wish. I think probably a better answer to is that the information flow that has to go back and forth every time there’s a minute change in the price … when you’re talking about not just hundreds of options … then you’ve got the multiple combinations of this option against that option, this spread against this spread, you’ve got fences and straddles and strangles and all this stuff, and there’s too much information.

Norman: It’s not a plain-vanilla type of purchase … a futures contract, short a futures contract.

Bauer: If one of the exchanges has come up with a successful option platform which could be then utilized to transact business, I wouldn’t be doing what I’m doing on the trading floor. Currently that doesn’t exist. That’s not to say that it won’t happen at some point, but it just doesn’t exist. And for now I think the window of opportunity, shall we say, is going to continue for at least another three, maybe seven more years.

Norman: All right. Let’s talk about your markets. You are the soft analyst for Pit Guru, and we’ve seen recently again some of these markets really start to perk up. What is behind this? It’s sort of a curious thing to watch, because you look at economic activity here in the United States, around the world – still very tepid, very weak. Why are these commodity prices rising? Is there a fundamental reason behind this, or is it again fund speculation?

Bauer: It’s a good question. I would have to answer that by looking at each individual market, and I can provide you with fundamental reasons, for instance, for sugar.

Norman: Let’s go; let’s run them down.

Bauer: Sugar price has gone up because the production on a world scale is lower, and consumption is certainly going to remain the same if not go up – increase as populations increase, and diets go up, diets improve. So I would have to say there’s a powerful fundamental force at work.

Norman: Is sugar also involved in this alternative energy theme, because don’t they use sugar in Brazil for the making of ethanol?

Bauer: Yes; in Brazil they do. In this country, we’ve been … how do I say this politically correct now … we use corn, OK? My understanding is it’s less efficient and more costly than it would be from sugar. Yes; so that force is at work as well.

In cotton, we had pretty good exports going, we had much-reduced crop size, not only in this country but tapered off around the world.

Norman: Is that because when we had the boom in the commodities like corn and wheat and soybeans two years ago, cotton acreage was reduced so that farmers used it to plant the more-lucrative crops?

Bauer: Sure, right. Not only that, you had … so those are markets … in coffee – right now my personal favorite market.

orman: Now coffee is at, what, like a four-month high right now?

Bauer: Yeah, coffee, made a high just shy of 140 last week; pretty much up every day last week until Friday, and then we saw some profit-taking. You remember those days when you get a little profit-taking after an up week all week? Today it was down, but you can’t keep it down.

Norman: Well, I certainly drink a lot of it, not that it’s so much of a contributory factor.

Bauer: And that’s why it’s bullish: because Mike drinks a lot. No. But in addition to all this, you also have a weaker dollar, and that’s been a major factor in the soft markets. We’ve also seen a lot of commodity fund investment.

Norman: Yeah; that’s what I want to talk about, because you deal a lot as a floor broker, you deal with people in the trade, people in the physical business of either producing or merchandising these commodities that you’re talking about. What do they say about the speculative element in the markets? Are they concerned about it, do they think it’s a good thing; what’s their view?

Bauer: I would have to say the overwhelming majority, especially in cotton, were very much opposed to the enhanced speculation.

Norman: What’s happening? Is it creating a distortion, is it making it harder for them to run their own business in terms of hedging and planning?

Bauer: Well, I don’t want to say that the traders used to use the market as an ATM machine, but I will tell you that they had a distinct advantage because they knew what was going on and they could use that to their advantage. You don’t want to say it’s insider trading or anything, it’s their business, and these markets were created for them to offset their price risk.

Norman: Nobody could know the market better than someone who’s physically involved in either producing or merchandising it, that’s clear.

Bauer: When you had this big influx of all this fund money, it became overwhelming to some of the boutique markets that we really have in the softs; they’re not the huge big-volume markets that you have. Sugar might be an exception when you compare it to some of the average daily volumes in cotton, coffee, cocoa and orange juice, but they’re certainly not as large or as deep of a market as oil or gold – what you used to trade.

Norman: It’s much easier to manipulate, in other words, to push around, absolutely, and the amount of money flowing into these funds and also these new instruments – ETFs that allow investors to buy into it like a stock. These are these passive long-only commodity investments that tremendous amounts of money are flowing into. So how does the outlook now … let’s give a little bit of an outlook now, let’s say, for the next six months or the remainder of this year … is this rally going to last, is it going to extend or are we going to plateau out?

Bauer: Well, I really wish I knew the answer to that, but I would have to say - from my own perspective right now - I believe coffee has got 1.50, 1.70 in it before the year is over, in all likelihood, because we do have a legitimate supply problem there. We’re approaching the season where you’re going to have the potential for frost in the Southern Hemisphere, which is where Brazil and etc. … and again you’re seeing the added component of the weaker dollar. In the case of cotton.

Norman: What about orange juice and cocoa?

Bauer: All right. First let me tell you that OJ had been undervalued last year; it’s a smaller market. I think that there’s concerns this year; we had a lot of concerns about drought conditions, although there had been rains this past week pretty much every day in Florida in the growing areas, which ought to take care of a lot that moisture concern. Demand had also fallen off, but I think demand is returning to its historical levels. I tend to believe that, again, we’re going to see prices kind of return to a normal level; in other words, head north of a dollar, head towards $1.15, currently trading in the low 90s.

Norman: Did it surprise you when we had that big run-up in commodity prices and then the collapse, and in some cases the retracement gave back all if not more of the original move? Did you think that was going to happen?

Bauer: I didn’t think the run-up was going to be as dramatic as it was; in particular, in cotton there was a two-year move in two days, and what happened is a lot of the legitimate farmers, producers who were depending on ... they’re selling their crop before it’s even planted, and all of a sudden the price goes up dramatically they get a margin call, and typically the bank would meet that margin call, but now the bank …

Norman: They got the credit crunch.

Bauer: … they got a credit problem. The bank is saying, OK, we’ll loan you the money, but at X outrageous percent. The farmer is never going to make a profit on his crop if he does that. So a lot of the merchants got caught with large short positions that needed to be financed and in going to the banks, they just discovered that there was a credit crunch, and so positions had to be covered at the top. That brought the thing right back down.

Norman: When you and I were traders – well you still are – but I mean back in the ’80s where you had … the markets were … you had the trade, you had people in the business, and then you had the professional speculators and they were there; they traded on the long side, they traded on the short side – there seemed to be more of a balance. Now what you have, it seems to me – and it came about with the advent of these index funds, these long-only vehicles – like a form of almost … you can call it hoarding. I mean, billions and billions of dollars, and you talked about how small these markets are relative to gold and oil, and certainly relative to equities or bond markets which are limitless.

Bauer: Sure, and then the currency markets.

orman: Right, so there is that danger there, isn’t it?

Bauer: Without a doubt. I think the danger expressed itself when we saw the dramatic price rise last year. It’s almost like there’s a vacuum created on either side of the marketplace. The cotton market hasn’t been the same since last year and we’ve seen another run-up of 20 cents this past couple of months. We peaked a little over 60-some-odd cents, and now it’s backed off. Today it was down; when I left it was down about $2.40, and they still have limits in cotton, believe it or not, of 3 cents. So that market is being pushed around purely by speculation, and the long liquidation is what’s causing it to come off right now.

We were talking about coffee, we talked about sugar a little bit, and cotton, and a little bit about OJ. Let me also mention cocoa. Cocoa was a market that was much higher last year, actually reached some very high levels. This year it’s the only component of the soft markets that is actually lower over the course of the year.

Norman: Is it attractive from a buy perspective now? If you wanted to get in – if that’s the one relative under-performer to the others – would you want to get into that or you stay?

Bauer: It’s interesting you would ask that.

Norman: I only ask interesting questions.

Bauer: I’m of the opinion that cocoa is probably not as friendly, let’s say, as the other markets. I would actually be looking on the short side of the cocoa market. It’s kind of being brought up because of the weakness in the dollar. The weakness in the dollar has dictated a lot of the near-term action in these markets in addition to the flow of funds, and the flow of funds is coming in because, as you pointed out, long only, long only.

Norman: Here’s something I’m curious about. Last year, last July, there were several bills in Congress to limit speculation; none of them passed. Are the exchanges concerned about that? Because obviously it would hurt their businesses. But by the same token, these bills could come up again, if we start to see prices of gasoline and other commodities and food start to go through the roof. There’s political pressure that is brought to bear by the citizenry on their representatives to do something. Do you think we’ll see something like that where there will be restrictions put in place on speculation?

Bauer: I really don’t want to see anything like that happen. These markets need speculation in order to exist.

Norman: But do they need it to this degree? I agree that speculation serves a function.

Bauer: In the old days, speculation was someone willing to take the risk. Today when you have, say, pension funds investing in the marketplace, the pension fund might be backed up by the taxpayer in some instance, believe it or not, so there’s almost like a built-in put option against the guy’s portfolio. If he loses money, well, the taxpayers are still going to have to pay. That doesn’t make any sense.

Norman: These things are long-only again. Again, going back to the day when you and I were trading, we go up, we shout, we go long-only.

Bauer: It’s great as it’s going up, but when you try to get out, you need a speculator on the other side.

Norman: All right; well there you have it. Jurgens, it was great; it was a pleasure seeing you again. Jurgens Bauer here, from Pit Guru and also from the IntercontinentalExchange. That’s it for my interview today, but a lot more on this interview series as we have brought to you. In the meantime, this is Mike Norman. Have a great day, take care.

Commodities Still In Correction Mode

2009-06-23T19:52:00.000-07:00

Futures popped a few points as continuing claims for unemployment recorded its first weekly drop since January. While last week was a record high (about 6.8 m), this at least is a step in the right direction.

Elsewhere:

1) The commodity correction continues. Commodities are down fractionally again today; while commodities are only down single digits in the last week or so (copper down 9 percent, gold down 5 percent, aluminum down 4 percent, oil down 3 percent), commodity stocks are seeing much bigger declines--big commodity names like Potash [POT 92.08 4.81 (+5.51%) ], Alcoa ,[AA 10.00 -0.02 (-0.2%) ] US Steel,[X 34.54 0.42 (+1.23%) ] & Consol Energy [CNX 34.54 1.52 (+4.6%) ] are down 13 to 17 percent.

Reappoint Bernanke, He's a 'National Hero': Welch
The Russian stock market is down another 4 percent this morning; it has dropped 15 percent since hitting an 8-month high in the beginning of June.

The World Bank also raised its growth forecast for China in 2009 to 7.2 percent from a 6.5 percent forecast made in March.

Bear in mind that in the first quarter they grew only 6.1 percent, the slowest rate of growth since 1999. This is HALF the rate of growth China had in 2007.

China Could Buy More US Debt: Ex-C. Banker
What is not clear is whether the Chinese consumer can take up even a fraction of the slack from the decline in exports; if they cannot the LME warehouses full of copper and aluminum will back up quickly.

2) Winnebago Industries [WGO 6.55 -0.21 (-3.11%) ] posted a bigger-than-expected Q3 loss amid a 62 percent decline in motor home deliveries, lower pricing, and higher production inefficiencies. Hit hard by weaker demand during the recession, the RV manufacturer sales of its vehicles fall 64 percent!

3) Q4 2009 earnings from J.M. Smucker [SJM 47.94 0.34 (+0.71%) ] handily beat estimates after the consumer foods maker saw a strong 16 percent rise in volume out of its recently-acquired Folgers coffee brand. This far exceeded the flat volumes from its other well-known consumer brands (Jif, Knott's Berry Farm, etc.), where sales still rose 5 percent due to higher pricing. Guidance for the current 2010 fiscal year was raised to $3.65-$3.80 from $3.62-3.72, above the analyst forecast of $3.37.

4) Pier 1 [PIR 1.86 0.09 (+5.08%) ] soars 24 percent (it's a $2 stock, bear in mind) in pre-market trading after its results surprised the Street. The home furnishings retailer posted a Q1 profit, but that was due to significant gains from the repurchase of debt. Sales are still weak: same-store sales declined 7.5 percent in the quarter.

5) Shares of Lions Gate Entertainment [LGF 5.37 -0.14 (-2.54%) ] rise 7 percent pre-open after investor Carl Icahn boosted his stake in the entertainment studio to 16.9 percent from 3.7 percent.

6) Liz Claiborne [LIZ 2.84 -0.18 (-5.96%) ] lowered its guidance, expecting a bigger than expected loss this quarter.

Seeds Of Pain

2009-06-09T18:51:00.000-07:00

Interesting trade hitting the tape today: A bearish investor made a $1.5 million bet that Mosaic [MOS 53.73 1.97 (+3.81%) ] stock would trade below $35 before the third week in September, purchasing over 14,000 contracts of the 35-strike puts. Yikes!!

According to Mike Khouw, "Options Action" star and head of equity derivatives trading for Cantor Fitzgerald, the trade was not done in conjunction with stock. "To put this trade on, you must think something really bad is going to happen soon," said Khouw.

Interesting trade hitting the tape today: A bearish investor made a $1.5 million bet that Mosaic [MOS 53.73 1.97 (+3.81%) ] stock would trade below $35 before the third week in September, purchasing over 14,000 contracts of the 35-strike puts. Yikes!!

According to Mike Khouw, "Options Action" star and head of equity derivatives trading for Cantor Fitzgerald, the trade was not done in conjunction with stock. "To put this trade on, you must think something really bad is going to happen soon," said Khouw.

Why Citigroup Is Bullish on Fertilizers

2009-06-01T10:10:00.000-07:00

Grain prices will move higher, according to Citigroup Global Markets analyst P.J. Juvekar. He thinks that will lead to multiple expansion in the fertilizer sector, and has turned bullish on the whole group. He upgraded Agrium Inc. (AGU), Mosaic Co. (MOS), and Potash Corp. of Saskatchewan Inc. (POT), and made hefty price target increases to each one.

Put simply, Mr. Juvekar believes that the strong fundamentals of the agriculture sector should trump concerns about the China potash contract. Investors have worried that potash prices could fall below last year's settlement with China of $575 a tonne.

As an alternative for worried investors, he offered up three very positive signs for the market:

- Grain supplies are tight. He believes that there is no "cushion" against an unforeseen event (such as bad weather) that could have a huge impact on prices.
- The U.S. planting season is behind schedule. He cited a report that U.S. corn plantings are 62% complete, compared to an average of 85% at this point for 2004 to 2008.
- Market stabilization and easing of deflation concerns. That is good for all commodities.

Mr. Juvekar upgraded Potash Corp. and Mosaic to "buy," and Agrium to "hold". He raised his price targets on each one by at least 50%, with Potash Corp. rising to $145.00 a share (from $83.00), Mosaic rising to $72.00 a share (from $48.00), and Agrium rising to $55.00 a share (from $36.00).

Citi also upgraded Israel Chemicals Ltd. (ISCHF.PK) and K+S AG as part of a global call on fertilizers.

Monsanto stock price decline overdone - Barron's

2009-06-01T10:08:00.000-07:00

NEW YORK, May 31 (Reuters) - Last week's decline in Monsanto Co's (MON.N) stock price after the world's largest seed company lowered its earnings forecast is probably overdone, Barron's reported in its June 1 edition.\

UBS' Don Carson said that even with the revised numbers, Monsanto shares are headed to above $115 within 12 months, the business weekly reported. Monsanto shares closed at $79 on Friday on the New York Stock Exchange.

A return to dry fields will also mitigate the negative effect that wet weather had on sales of its weed killer Roundup, Barron's said.

Monsanto said last week that tougher competition in the herbicide business would push fiscal-year results to about $4.40 per share, the low end of its earnings forecast.

Commodities: A Wise Long Term Investment

2009-05-19T09:55:00.000-07:00

Today, our neighbors to the north are celebrating the birthday of Queen Victoria, the most commemorated and longest-reigning British monarch. Frankly, if President Obama manages to get our nation through the current economic crisis successfully in the few years allotted to him, celebrating his birthday from then on would be the least honor we could bestow upon him. No matter how much he wanted the job, being promoted to ship's captain in the midst of a typhoon is one tough assignment.

Of course, many people will find the coming months tough, including investors, who will likely find that any recovery is a double-edged sword. You see, we've noticed a very strong correlation between changes in raw commodity prices and changes in corporate profits, dating back at least a generation. And that relationship implies both opportunities and pitfalls ahead.

For instance, the current stock market rally seems to be anticipating a surge in corporate profits. Right now, the S&P sells for roughly 20X annualized first quarter profits (S&P / (Q1 profits) * 4 = 20). That's far too high. So either the S&P has gotten too far ahead of itself, or corporate profits will likely surge forward in coming months.

At the same time, commodity prices are rallying as well. In fact, the gains in oil prices since the recent bottom far exceed the gains in stock prices. Ditto for many other commodities. If corporate profits are about to go on a tear, we can expect commodity prices will march in step. Unfortunately, such a move would make stock prices self-limiting on the upside.

Here's why...

THE COMMODITY TAX

A bull market in commodity prices would surely lead to slower economic activity. As we clearly saw in 2008, rising prices for commodities (especially oil and gas) act as a punitive tax on the American consumer. We use the word “punitive” because, unlike government taxes which can pay for programs and services that benefit everyone or be used to retire taxpayer debt, higher commodity prices only benefit producers. In the case of oil it is the Middle Eastern countries that reap the bulk of the rewards, for other commodities beneficiaries include nations such as Brazil, Canada, and even Australia.

(Incidentally, because the future looks so bright for commodities, we recommend these resource-rich nations as some of the best places to invest. If you can tolerate a high degree of political uncertainty, you can add Russia to this mix.)

In other words, to whatever extent the economy recovers, it will be accompanied by higher commodity prices. The two factors are wedded.

In passing, we must admit that even we have been surprised by the gains in oil. News from the oil industry has been horrendous, from our point of view. Days-to-cover (oil inventories divided by daily demand) has climbed to the highest level in 15 years. And U.S. demand remains subdued indeed close to decade lows. As far as we can see, the only reason oil prices remain over $50 must be due to rising consumption in China and India. Nonetheless, oil prices are not only hanging in but rising faster than stocks. This positive leverage may have something to do with China – and just their outright need for commodities but also their need to protect their assets.

CHINA'S EFFECT ON COMMODITY PRICES

Let's consider China's response to the massive amount of money that has been poured into the U.S. economy, by both stimulus spending and the Federal Reserve's money creation efforts. So far, these efforts have not resulted in higher inflation, but they likely will in time. Consequently, yesterday's newspaper reports that China has started putting more of their huge money reserves (which they get from selling products abroad) into commodities rather than U.S. Treasury bonds.

We cannot be surprised. Creating massive amounts of U.S. dollars lowers the perceived value of our currency. China naturally feels nervous about holding all its reserves in an asset whose value is destined to drop sharply, at least in their view, so it wants to diversify into more tangible assets. In similar vein, China recently reported adding to its gold reserves.

China's increased buying of commodities naturally helps support commodity prices. In fact, we think it's one reason two of our picks, Mosaic (MOS) and Potash Corp (POT) have done so well recently. They are the two largest fertilizer companies in the world, and big producers of the potassium-based fertilizers known as “potash.”

If there's one thing China needs, even more than energy, it is fertilizer. The country has an enormous population to feed, and requires stockpiles of potash to get through any economic turmoil. We strongly suspect that fertilizer stocks are gaining ground because of Chinese efforts to accumulate fertilizers, and it is a trend which should continue for some time.

So that gives us two good reasons why commodity prices will rise. First, they will rise alongside any gains in the stock market and corporate profits. Second, commodities will increasingly be seen as a hedge against a falling U.S. dollar. This double kicker is the likely reason critical commodities have been rising even faster than financial assets.

Our general advice is that, to the extent the current rally continues, you will likely profit from commodity-related investments. The only thing that could short-circuit commodity gains would be further declines in economic growth. Any improvement in the economy will only push commodities higher. So stick with commodities, including oil and gold.

As for the market in general, the downside still outweighs the upside at this point. We still could see a retest of the recent low. However, we are heartened by the fact that the government seems determined to do whatever it takes to avoid a real depression. Given the choice, we would rather face the consequences of monetary stimulation than deflation.

With that in mind, if the market does move lower, we would probably see the Federal Reserve buying large amounts of Treasury bonds. Treasury bonds have been under pressure as a consequence of the monetary stimulation taking place. That won't change, especially with the Chinese buying commodities (which reduces demand for Treasury bonds). So the government will need to step in and buy bonds if it has any hope of keeping mortgage rates low and engineering a recovery in the housing market. (Of course, this can become another vicious circle which leads to inflation.)

Longer-term, we expect the stock market will remain stuck in a trading range. The Dow will have a hard time getting past 10,000 anytime soon, which gives us a maximum upside of 20% from here. (Short-term, we doubt it will get that far.) The bottom of the trading will probably be around 5,000. Those boundaries may remain in place for a very long time.

Short-term, too, the downside outweighs the upside. Given the negative signals from our indicators, we think the recent rally has been extremely speculative and could soon run out of steam.

Bottom line: the way to make money in the long-term trading range will be to invest in commodity-related investments.

A Big Upgrade for CVR Energy

2009-05-18T10:03:00.000-07:00

Every day, the sun rises on Wall Street, and a plethora of professional analysts wake to issue new opinions on stocks. Here at the Fool, we use our "This Just In" column to examine some of these picks-- and the track records of the firm behind them -- so individuals can make better investing decisions.

In addition to following professional banks, anyone can use Motley Fool CAPS to monitor the collective opinions of more than 130,000 members, many of whom demonstrate better investing insight than published analysts do.

More top-performing CAPS members have piled on the bull train for CVR Energy (NYSE: CVI) recently, enough to upgrade it from its three- and four-star rating to the highest possible five-stars. A total of 210 members have given their opinion on CVR Energy, with many of them offering analysis and commentary explaining the recent optimism.

Although CVR's petroleum revenue dropped significantly in the first quarter, it reported its highest first-quarter operating income since going public late in 2007. It and fellow refiners like Valero (NYSE: VLO), Tesoro (NYSE: TSO), Western Refining (NYSE: WNR), and Sunoco are posting higher refining margins now that the price of crude has fallen precipitously from 2008 highs. CVR is benefiting from the oil market contango, helping its adjusted refining margins jump 20%, which helped it bring in a 38% rise in earnings.

Demand in CVR's fertilizer business has been soft, mirroring the hit taken at others like Mosaic (NYSE: MOS) and PotashCorp (NYSE: POT), as the company waits on a delayed planting season for Midwest corn farmers. Sales in the business rose 8% to $67.8 million and, similar to Terra Industries (NYSE: TRA), CVR had better urea ammonia nitrate (UAN) prices and increased ammonia volume offset by softer UAN volumes and lower ammonia prices. Along with many CAPS members and Wall Street analysts, CVR's management is confident in the fundamentals of the nitrogen business and looks for sales to pick up when planting gets under way.

CF again rebuffs Agrium and pursues Terra

2009-05-17T16:39:00.000-07:00

CF Industries Holdings Inc. rejected the latest revised takeover proposal from Agrium Inc., calling the deal price inadequate

The Deerfield, Ill., holding company /quotes/comstock/13*!cf/quotes/nls/cf (CF 79.75, +2.07, +2.66%) for a producer and distributor of nitrogen and phosphate fertilizer products said in a statement that the latest revised proposal from Agrium "continues to substantially undervalue the company and is not in the best interests" of the company and its shareholders.

On May 11, Agrium, /quotes/comstock/13*!agu/quotes/nls/agu (AGU 48.18, +1.26, +2.69%) the Calgary, Alberta, retailer of agricultural products and services and producer of nutrients for agriculture and industry, said it boosted the cash part of its bid for CF by $5 a share.

The latest proposal offers CF holders $40 cash plus 1 Agrium share for each of their shares. Based on Agrium's closing price on Friday, the deal values CF at $88.18 a share, or $4.33 billion, based on 49.1 million shares outstanding at March 31.

The takeover battle began in February, when Agrium proposed to pay $72 a share, or $3.6 billion, for CF.

In its Friday statement, CF said the board decided that the company's best path is to continue its current strategy, including its proposal to acquire Terra Industries, /quotes/comstock/13*!tra/quotes/nls/tra (TRA 28.36, +0.29, +1.03%) the Sioux City, Iowa, producer and marketer of nitrogen products for agriculture and industry.

Terra has rebuffed CF's proposal to pay 0.4235 share for each of Terra's shares. On Thursday, Dow Jones Newswires reported that Terra Chief Financial Officer Dan Greenwell said the company would consider growth via acquisition and might resume its share buyback.

Morgan Stanley and Rothschild are advising CF Industries.

Fertilizer Companies On The Rise

2009-05-15T20:42:00.000-07:00

Tight corn supplies might get farmers spending on fertilizer again.

Now not even dirt is safe from the financial crisis.

In an effort to cut costs amid tight credit conditions and weak commodity prices, farmers haven't been laying crop nutrients on as thick--much to the dismay of fertilizer companies. But with price incentives on the horizon with expectations for strained corn supplies, fertilizer companies are enjoying an enriched outlook as farmers scramble to boost yields on the most nutrient-demanding crop

"Corn is by far the most fertilizer intensive of the major row crops, and rising planted acreage translates directly into stronger demand for each of the primary fertilizer nutrients," said J.P. Morgan analyst Jeffrey Zekauskas.

Mosaic ( MOS - news - people ) shares gained 97 cents, or 1.9%, to $51.30, Agrium ( AGU - news - people )'s stock added $1.26, or 2.7%, to $48.18 and CF Industries Holdings ( CF - news - people ) added $2.07, or 2.7%. to $79.75 during Friday's trading session.

According to Morgan Stanley analyst Vincent Andrews, cutting back on fertilizer doesn't actually eliminate costs, it merely delays them since the longer nutrients are restricted, the more fertilizer is needed to reverse soil depletion. That could mean a surge in fertilizer sales as farmers quickly stock up on the supplies needed to produce a bountiful corn harvest.

Farmers are likely waiting for nutrient prices to come down, but, as Andrews points out, that may not make much sense as corn prices rise.

"We believe that current retail potash prices are $39 per acre for corn application. Assuming that prices decline by 50% between now and next fall or spring, farmers could save $20 per acre by deferring application. However, at $4 corn, should farmers' yield decline by 5 bushels, there would be no net savings," Andrews said, adding that farmers risk prices not falling as much as hoped.

On Tuesday, the USDA revised down its estimates of corn stocks by 100 million bushels to 1.6 billion bushels, putting year-over-year supplies lower even as demand is expected to increase by 3.5% from a year ago. (See "Supply Squeeze Seen On U.S. Crops.") Corn production estimates could be even lower if stringent fertilizer applications lower yields even more than expected. Weather could also further weaken yields.

CF rejects latest Agrium offer as too cheap

2009-05-15T20:40:00.000-07:00

CF's board rejects Agrium's offer

Calls offer too cheap

LOS ANGELES, May 15 (Reuters) - U.S. fertilizer maker CF Industries Holdings Inc (CF.N) rejected on Friday a roughly $4.2 billion acquisition by Canadian rival Agrium Inc (AGU.TO), as being too cheap, and stood by its own plan to take over Terra Industries (TRA.N).

The U.S. company, which has repeatedly spurned Agrium's advances, said the latest offer of $40 cash per share and one Agrium share for each CF share was "not in the best interests of CF and shareholders." [ID:nWEN9244]

Agrium, which made a similar offer to shareholders in February but raised the cash portion of its bid to $35 a share from $31.70 a month later, has tried to meet with CF management to no avail.

CF, for its part, has launched its own takeover bid for Terra, and accuses Agrium of trying to derail that deal. [ID:nN11504828]

The company said the latest offer did not take into account increases in its own cash position since the initial bid, and a 36.9 percent in the average share price of its peer group as stock markets rallied.

"Agrium has not significantly changed the terms of its offer since it was first made and the board believes that the offer continues to substantially undervalue CF Industries," CF CEO Stephen Wilson said in the statement.

Agrium executives were not available for comment.

Ag Stocks: More to Reap?

2009-05-15T20:35:00.000-07:00

Hello from New York, where I’m spending my day off from television doing a little bit of reaping of the Agrium (AGU) position I sowed over the last few weeks. Whether you’re Egypt or Wall Street, pigs invariably get slaughtered. There may be more to be made in this particular name -- and the ags in general -- but they’ve made a heck of a move in May. Not selling at least some of the position would be greedy and leave an easy, obvious but still amusing pun on the table. That’s not going to happen on my watch, Minyans. One-third of my Agrium has been put in the silo (where 95% of the profits immediately went towards the car industry and wasteful health-care control).

Here’s what I’m doing when not combining trading with gentleman farming:

Nordstrom (JWN) turned in a nice quarter in a tough environment. The stock is up almost 10% and I’m hulking out of my shirt, having been told by the guy who sells Thomas Dean dress shirts to the company (only in stores until they hit the website in July) that he can’t keep up with demand from the chain. I’m the Bill Cosby of promotion; if I don’t believe in it, I won’t talk about it. These shirts are the real deal and Nordies' recovery seems to be same.

Speaking of retail, JC Penney (JCP) has been all over the map after turning in a quarter softer than an over-soaked Nilla Wafer. It’s all about the close, as we say. From where I’m sitting JC Penney goes lower, though not so much so that I’d short it.

Also doing a whole lot of nothing, trimmed to a position size you could fit in your pocket and generally not inspiring me unless I compare it to Wal-Mart (WMT) is Target (TGT). The Minnesota juggernaut reports next week, is up big-ish so far for the year and is expanding its no-margin consumable business. I don’t expect Target to have a much better quarter than Wal-Mart, making it hard for me to want to hold the few shares I have left. Feels like a 5% gain/10% loss potential outcome set-up. The Target position may not make it to end of this post.

I was uncharacteristically too optimistic. My puny Target position didn’t make it to the end of this bullet point.

What do I like right now? Long weekends. Good books. Movies you don’t have to explain and Ultra Short ETFs in both the S&P 500 (SDS) and the Financials (SKF). I only talk about the weekends, books and movies in mixed company.

I also remain long Ford (F), which was described by a guest on yesterday’s Fast Money as “at a competitive disadvantage competing with the government and UAW." I chuckled for 2 consecutive minutes during the ensuing commercial break. Banks getting free money from the government and using it to buy risk-free bonds have a competitive advantage. I suspect Ford feels much less threatened at the prospect of competing with car companies run by hundreds of people who seem motivated by virtually everything except creating marketable, profitable cars.

Two keys to good trading: Luck, and the ability to recognize it. Just yesterday, I got long MGM Mirage (MGM) near the $8 level. It rose in a way that makes me smug even by my own standard, continuing to climb right up until I left for the city. Logging in at the NASDAQ, I was horrified to see a complete and hideous MGM reversal, turning my position from green to a fairly dark red during my train ride. With a memory like an elephant for losses and all the grace of Bobby Knight when I do, this turn of events left me “displeased." Right up until this morning when some kind soul bid the name to the mid 8’s, buying me out along the way. As the old saying goes, fool me once, shame on me. Fool me twice and I’m taking a ball-peen hammer to my own thumb in a fit of rage. Happily, I remain an ambidextrous hitchhiker and am now out of MGM.

With that I’m off to use my 2 good thumbs to do some writing and drawing with the kids. As Toddo has said repeatedly, S&P 500 875 remains important support. I’ve got 900 as resistance. From where I’m sitting (with a disproportionate amount of cash on hand and a slightly negative skew), JWN and S&P 875 are your tells of the afternoon. We’ve got some space before JWN pulls a Kohls-type of reversal (see KSS yesterday) or we lose 875. But if either should occur, you’re going to see plenty of folks looking for the sidelines for the weekend.

Always one who enjoys a little solitude, I’m beating the rush and hitting the road early. Make it a strong close and safe weekend, Minyans. We’ll resume the grind on Monday!

Monsanto Update

2009-05-15T20:34:00.000-07:00

Monsanto (NYSE: MON): We originally recommended on April 30/07 at $60.30. Closed Thursday at $90.03 (all prices in U.S. dollars).

Last month the company announced second-quarter earnings of $1.09 billion ($1.97 per share), down slightly from $1.13 billion ($2.02 per share) last year. However, excluding one-time items, earnings per share for on-going business were $2.16, up from $1.77 last year. Pretty good numbers in a tough economy!

I originally recommended this stock in April 2007 at $60.30 and last mentioned it as part of an agricultural basket in September 2008 when it was trading at $118.41. The stock is currently trading in the $90 range and I expect it to break $100 before this run is over. The 52-week high was $145.80, which was reached last June, and I believe we could go there again. I just bought some more for one of my accounts and I consider it a key holding for the next 12 months.

The stock held up very well through the meltdown and the agricultural production story is still intact. Food consumption is only down 3% but the stock has been punished along with all the other fertilizer stocks like Potash Corp. (POT). All these stocks have begun to rebound and I think it's a sure bet that they will continue to do so.

Fast Money AG plays

2009-05-14T21:39:00.000-07:00

Lee shifted the panel's attention to the ag names, which she said made "monster moves to the upside."

Macke said the fertilizer names are finally making a comeback after spending a "year in the penalty box." He told investors they can now play Agrium(AGU Quote) and Potash(POT Quote). Of the two, Adami thought Potash was the better play.

Grain Prices: Back to the Futures

2009-05-12T09:25:00.002-07:00

We noted in our May 1st Monthly Outlook summary points that the fundamentals promise bullish support for corn and soybeans prices in the near term, while less so for wheat prices. We often look to the CFTC’s weekly Commitment of Traders (COT) report to give us a better sense how the underlying futures speculation supports or casts doubt on the near term price outlook.

Keep in mind that the COT report is a rear-view look at the previous week’s trading. Even so, we can use this information to validate our assumptions of how the large speculators’ recent trading activity is supportive or restrictive of the current price move.

Performance of Underlying Futures

(weekly reporting period ending May 5th)

Corn: Prices for the reporting period rose 6% with flat open interest, while the large speculators’ net long position exploded by nearly 90% over the previous week. This dynamic tells us that the large speculators are increasingly bullish, yet the market overall is failing to attract new institutional buyers. This will likely change as the dollar weakens further.

Soybeans: Prices for the reporting period rose 13% and continued to see steady gains in both open interest and the net long position for the large specs. This dynamic of the open interest and the net longs rising in tandem demonstrates continued support for soybeans’ bullish leadership of the grains complex.

Wheat: Prices for the reporting period rose 6%. Open interest was down more than 5% over the previous week while the large specs’ net short position decreased by a whopping 78%. This feels more like short covering and spillover optimism from soybeans and the outside markets, rather than a sustainable bullish move for wheat. We have noted recently that wheat has the most difficult fundamentals to overcome in the grain complex. Production shortfalls due to drought and planting delays would need to be near historic levels to substantially impact the supply-demand equilibrium in the near term.

This week the trade turns its immediate attention to the May 12th supply-demand report, where the USDA will give the market its first official estimate of ending stocks for the current marketing year..seeking alpha

Agrium Ups Bid for CF Again

2009-05-12T09:25:00.001-07:00

Today, Agrium Inc. (NYSE: AGU - News) announced it is substantially increasing its exchange offer to acquire all of the outstanding shares of CF Industries Holdings, Inc. (NYSE: CF - News) to $85.20 per CF share based on Agrium's closing stock price on May 8, 2009. Under the revised terms, CF stockholders would receive $40.00 in cash, an increase of $5.00, or 14.3 percent, in the cash consideration, and one common share of Agrium for each CF share.

The increased offer represents a premium of 53 percent to CF's closing price on February 24, 2009 -- the day before Agrium announced its initial proposal, and 68 percent to the previous 30-day volume weighted average price. While it is too early to see if this is the final offer, ultimately we believe that Agrium will prevail, and CF Industries has a fiduciary responsibility to accept the offer.

Cramer's recent take on POT

2009-05-08T19:54:00.000-07:00

Says Terra Nitrogen is a better pick than POT. What is your opinion ?

Bulls Are Hungry for Grains

2009-05-08T19:53:00.000-07:00

The following excerpt is taken from our monthly Agriculture Outlook Report, issued to subscribers on the last Friday of every month.

Near-Term Grain Price Outlook:

+ We expect soybeans to maintain their bullish momentum on Chinese purchases and international demand diverted from the South American market. U.S. ending stocks continue to shrink at a remarkable pace, and will remain tight until Chinese demand abates or South American production returns to normal next year.

+ Corn’s upside will begin to brighten as selling pressure from farmers’ unloading of old-crop storage subsides. If heavy rains continue to blanket the grain belt, the trade will see increasing concerns that planting delays will encourage growers to switch to soybeans. This development will provide a bullish double-whammy to corn’s price outlook because it reduces both expected yields (late planting) and overall acreage (switch to beans). We should note, however, that any planting delay premium for corn may be somewhat muted, as last year’s results are still fresh in traders’ minds. Recall that we had record pre-season rainfall that flooded fields throughout the western grain belt, yet we still realized superb productivity with the national yield at 153.9 bushels/acre.

+ The supply-demand equation is far too bearish to allow any significant momentum to develop in the near term for wheat prices. Record prices in 2008 did their job to spur enormous production increases, which now leave us with quite ample global supplies to meet current demand. If the U.S. dollar’s strength persists, U.S. wheat sales will continue to lose marginal orders in the export market. One bright spot in the wheat outlook: Prices will benefit from significant production cuts both in the U.S. and abroad, although any gain will be muted by the influences of excess supply noted earlier in this month’s report.seeking alpha

Agriculture Stocks Still Make Sense, When Selected Wisely

2009-05-02T13:17:00.000-07:00

Friday morning we got some disappointing news about slowing sales at Caterpillar (CAT). There's been a softening of orders in new machinery / equipment tied to global infrastructure and agriculture, which has led the company to slash costs and forecasts.

Earlier this month, we heard a similar story from Deere (DE), which has seen orders for agricultural equipment drop sharply.

You might be tempted to conclude that weak orders for agricultural machinery equates to a weak outlook for "ag" as an industry. It doesn't. You just need to pick your spots.

My checks of farmer demand indicate that, while uncertainty about the global economy remains a concern, farmers still need to grow their crops. To get the most from their crops, demand for nutrients, chemicals and fertilizer remains very high. Suppliers I've checked in with are very happy about orders for the coming season.

My two favorite nutrient/fertilizer plays here are Potash (POT) and Agrium (AGU) -- with trailing enterprise-value-to-EBITDA ratios of under 6 times and 4 times respectively. Both should see their stocks rise over the summer as results come in.

I also mentioned AgFeed (FEED) last week, a favorite Chinese small-cap of mine, selling pork in that market -- it's up about 20% since my mention last Thursday.

Ag makes sense. You just have to realize that not all in the space are created equal at this stage in the cycle.