Russell 1000 adds 10 materials and processing stocks, 3 stocks in sector removed from index
NEW YORK (AP) -- Ten companies in the materials and processing sector are being to be added to the Russell 1000 in this year's reconstitution of the large-stock index, while three in the sector are being removed.
AECOM Technology Corp., AptarGroup Inc., CF Industries Holdings Inc., Century Aluminum Co., Greif Inc., Schnitzer Steel Industries Inc., Terra Industries Inc., Valhi Inc. and Valmont Industries Inc. were added to the Russell 1000, all moving up from the small-stock Russell 2000.
Intrepid Potash Inc. is a new addition to the Russell 1000, having debuted on the market in April.
Forestar Real Estate Group Inc., Louisiana Pacific Corp. and Westlake Chemical Corp. were removed from the large-cap index and moved to the Russell 2000.
Tacoma, Wash.-based Russell Investments realigns the Russell 3000 index once per year, tracking what it maintains is 99 percent of the U.S. equity market. That index is then broken down to 26 smaller indexes, including the widely watched Russell 1000 index of large capitalization stocks.
The makeup of the Russell indexes for the next 12 months was finalized after the closing bell Friday.
Monday, June 30, 2008
Saturday, June 28, 2008
Fertilizer Bulls Are Ignoring Planting Cycles
Over the last several weeks, I have read countless analyst reports, news articles and blog entries that have all tried to make the case that the earnings of the fertilizer companies are all set to soar. The investment thesis proposed by these authors revolves around surging world demand and the recent flooding in the Midwest. While the flooding has been tragic, fertilizer bulls have argued that the flooding will act as a catalyst for companies such as Monsanto (MON) and Potash Corp. (POT).
These traders are speculating that farmers will choose to replant their crops in an effort to cash in on surging commodity prices, and that to achieve these results they will be forced to relay on tremendous amounts of fertilizer to ensure adequate crop yields. Given the current supply and demand imbalance in the food markets I have no doubt that the long-term thesis for fertilizer stocks is correct; however, in the short term I believe that the fertilizer bulls are mistaken, as they are ignoring the basic planting cycles for corn and soybeans. It is my opinion that it is simply too late for farmers to replant in an economic manner.
According to the Iowa State extension office the optimum time to plant corn is between April 20 and May 10. The longer that one delays planting, or takes to replant, the dramatically lower the crop yield will be. While Fertilizers may help support late plantings, there comes a point where the cost-benefit equation is decidedly against farmers. I believe we are very close to that point. After all, we must remember that farmers are some of the most subsidized Americans and the most recent farm bill is but another example of the strong support that farmers have on Capital Hill. Even if they do not replant, they are guaranteed a significant amount of replacement income, which for some is tied to the prices of the crops they would have produced. Since this is the case, I see no reason for farmers to spend additional money on fertilizer products when they can simply collect from the government at the end of the year.
Below is an interesting chart on corn yields matched up against the planting date. When looking at the chart it is important to remember that it is nearly July and the ground is still wet.
These traders are speculating that farmers will choose to replant their crops in an effort to cash in on surging commodity prices, and that to achieve these results they will be forced to relay on tremendous amounts of fertilizer to ensure adequate crop yields. Given the current supply and demand imbalance in the food markets I have no doubt that the long-term thesis for fertilizer stocks is correct; however, in the short term I believe that the fertilizer bulls are mistaken, as they are ignoring the basic planting cycles for corn and soybeans. It is my opinion that it is simply too late for farmers to replant in an economic manner.
According to the Iowa State extension office the optimum time to plant corn is between April 20 and May 10. The longer that one delays planting, or takes to replant, the dramatically lower the crop yield will be. While Fertilizers may help support late plantings, there comes a point where the cost-benefit equation is decidedly against farmers. I believe we are very close to that point. After all, we must remember that farmers are some of the most subsidized Americans and the most recent farm bill is but another example of the strong support that farmers have on Capital Hill. Even if they do not replant, they are guaranteed a significant amount of replacement income, which for some is tied to the prices of the crops they would have produced. Since this is the case, I see no reason for farmers to spend additional money on fertilizer products when they can simply collect from the government at the end of the year.
Below is an interesting chart on corn yields matched up against the planting date. When looking at the chart it is important to remember that it is nearly July and the ground is still wet.
Will the Potash Boom Benefit CN and CP Rail?
The agriculture boom and growing demand for fertilizer may be doing great things for potash producers and their investors, but it should also provide a boost for Canada’s railways.
Canpotex, the world’s largest potash exporter, which is owned by Saskatchewan producers Potash Corp. (POT), Agrium Inc. (AGU) and The Mosaic Co. (MOS), announced plans to spend more than C$500-million to nearly double its potash shipping capacity on the west coast to meet global demand.
It will add 11 metric tons (mt) to the already 12mt with the new greenfield Ridley terminal near Price Rupert, B.C. and a brownfield expansion at Neptune Block Terminals in North Vancouver. The terminals are serviced by Canadian National Railway Co. (CNI) and Canadian Pacific Railway Ltd. (CP), respectively.
While Canpotex has not said how the 11mt of additional potash will be divided between the two locations, RBC Capital Markets analyst Walter Spracklin expects a 50-50 split. He added that it is unclear who would provide the funding for these expansions.
The Neptune expansion is expected to benefit CP before 2012, while CN will likely see more long-term advantages, the analyst told clients. That’s because the Ridley terminal, expected later than Neptune, will allow CN to establish a potash operation in Prince Rupert where there was none before.
“In the long term, we believe that the Ridley terminal would provide a competitive advantage from a cost and service perspective,” Mr. Spracklin said, adding that the terminal would also give CN a better chance at bidding for Canpotex’s export potash business when it is due for renewal in 2012.
He has not made any adjustments to his earnings per share [EPS] estimates for the rails because the projects are several years down the road, but sees C$0.19 of additional EPS for CP and C$0.09 for CN.
Canpotex, the world’s largest potash exporter, which is owned by Saskatchewan producers Potash Corp. (POT), Agrium Inc. (AGU) and The Mosaic Co. (MOS), announced plans to spend more than C$500-million to nearly double its potash shipping capacity on the west coast to meet global demand.
It will add 11 metric tons (mt) to the already 12mt with the new greenfield Ridley terminal near Price Rupert, B.C. and a brownfield expansion at Neptune Block Terminals in North Vancouver. The terminals are serviced by Canadian National Railway Co. (CNI) and Canadian Pacific Railway Ltd. (CP), respectively.
While Canpotex has not said how the 11mt of additional potash will be divided between the two locations, RBC Capital Markets analyst Walter Spracklin expects a 50-50 split. He added that it is unclear who would provide the funding for these expansions.
The Neptune expansion is expected to benefit CP before 2012, while CN will likely see more long-term advantages, the analyst told clients. That’s because the Ridley terminal, expected later than Neptune, will allow CN to establish a potash operation in Prince Rupert where there was none before.
“In the long term, we believe that the Ridley terminal would provide a competitive advantage from a cost and service perspective,” Mr. Spracklin said, adding that the terminal would also give CN a better chance at bidding for Canpotex’s export potash business when it is due for renewal in 2012.
He has not made any adjustments to his earnings per share [EPS] estimates for the rails because the projects are several years down the road, but sees C$0.19 of additional EPS for CP and C$0.09 for CN.
New Indexes Take Different Slant on Commodities
Commodities are hot right now. Very hot. Everybody's watching the performance of futures contracts and the indexes tracking those contracts. However, commodities do come from somewhere. Copper, for example, does not spring from the earth in shiny little coils, and soybeans do not grow in the wild in neatly formed rows.
There's planting, extracting, refining and hundreds of other processes that must be implemented before commodities ever reach the end consumer. But we're not hearing so much about the companies that actually produce the commodities we use. That might be about to change.
Commodities expert (and the creator of his own family of widely followed commodities indexes) Jim Rogers and Van Eck Global have teamed up to create what appears to be the first comprehensive global index of hard assets producers. There already are sector indexes, of course, that cover commodities producers in a particular area - such as the stand-alone Amex Gold Miners Index or the industry-specific sub-indexes that can be found in most broad-based global index families.
There is also the S&P North American Natural Resources Sector Index, which cuts across different commodities-related sectors but isn't global in scope. Before now, there does not appear to have existed a wide-reaching global equity index that covered commodities producers across a range of sectors - let alone an entire index series.
Find A Gap And Fill It
"I don't know of any [other similar indexes]. That was one reason I wanted to do it," said Rogers. "When there's a gap, particularly in something you think people need to know about or participate in, somebody's got to do it - so we did it."
The Rogers Van Eck Hard Assets Producer Index family includes a headline index of more than 300 companies, in addition to a composite index that contains nearly 850 stocks. The series also includes an extra-liquid index with just 50 stocks and three sector indexes covering agriculture, energy and metals. In all, the family includes the stocks of companies domiciled in 39 different countries, and the companies in the headline index have a combined market capitalization that represents 15% of the global total.
There's a lot that's interesting about the index family. For one thing, it isn't limited to producers per se - it also includes companies that provide vital products and services to those producers. It also isn't limited to producers of commodities that are featured in the major commodity indexes or even the ones that have futures contracts based on them - the index family's scope includes an "alternatives" category that covers companies such as water utilities and companies involved in the production of energy from alternative resources like the sun or the wind. The Alternatives category encompasses companies involved in alternative energy resources, energy efficiency, water utilities and water infrastructure and technology; the sector represents about 4% of the headline index.
"As the world changes, we are prepared for the changes," Rogers said of the decision to include the Alternatives category, pointing out that equity shares are the only way for investors to access those areas of the commodities markets since there is no futures market.
The other five sectors covered by the index are agriculture, base/industrial metals, energy, forest products and precious metals. The sectors are weighted within the index based upon global consumption, while individual equities are weighted within those sectors by float-adjusted market capitalization.
The index family is focused on pure-play companies: Each company must derive at least 50% of its revenues from its operations in the commodity sector it falls into. However, that requirement is waived (to 25%) for companies operating in the water sector, since that tends not to be their only focus.
Not surprisingly, Van Eck, which has already launched a number of equity-based ETFs that cover companies operating in commodities sectors such as steel and coal, has a hard assets producers ETF in registration that will track an unspecified index - probably the headline Rogers Van Eck Hard Assets Producers Index. (Read the prospectus here.)
And what will this index offer investors? Well for one thing, Rogers points out, there are still an awful lot of investors who get nervous as soon as the word "commodity" is uttered. A product based on the index will offer commodities exposure through the companies that operate in that area without actually investing in the commodities themselves.
"Some people just cannot bring themselves to buy commodities for whatever reason, so this is an alternative," Rogers said.
Alternative Approach
And let's not forget the current situation: Given that the Commodity Futures Trading Commission and Senator Joseph Lieberman are taking a hard look at whether funds investing directly in commodities are driving up commodities prices and whether legislative intervention is needed, more than a few investors may be interested in an index (and by extension any product based on it) that offers exposure to commodities through equities rather than futures.
Rogers said the equities-based RVE Hard Assets Producers Index has outperformed most pure commodities indexes recently, but that it should correlate with those indexes over time - with either the futures-based indexes or the RVE index outperforming in any given time period. However, commodity-related equities tend to correlate more closely with equity markets than with commodities markets, which means investors who opt for commodity equities rather than commodity futures could be missing out on the well-documented diversification benefits of commodity futures.
There's planting, extracting, refining and hundreds of other processes that must be implemented before commodities ever reach the end consumer. But we're not hearing so much about the companies that actually produce the commodities we use. That might be about to change.
Commodities expert (and the creator of his own family of widely followed commodities indexes) Jim Rogers and Van Eck Global have teamed up to create what appears to be the first comprehensive global index of hard assets producers. There already are sector indexes, of course, that cover commodities producers in a particular area - such as the stand-alone Amex Gold Miners Index or the industry-specific sub-indexes that can be found in most broad-based global index families.
There is also the S&P North American Natural Resources Sector Index, which cuts across different commodities-related sectors but isn't global in scope. Before now, there does not appear to have existed a wide-reaching global equity index that covered commodities producers across a range of sectors - let alone an entire index series.
Find A Gap And Fill It
"I don't know of any [other similar indexes]. That was one reason I wanted to do it," said Rogers. "When there's a gap, particularly in something you think people need to know about or participate in, somebody's got to do it - so we did it."
The Rogers Van Eck Hard Assets Producer Index family includes a headline index of more than 300 companies, in addition to a composite index that contains nearly 850 stocks. The series also includes an extra-liquid index with just 50 stocks and three sector indexes covering agriculture, energy and metals. In all, the family includes the stocks of companies domiciled in 39 different countries, and the companies in the headline index have a combined market capitalization that represents 15% of the global total.
There's a lot that's interesting about the index family. For one thing, it isn't limited to producers per se - it also includes companies that provide vital products and services to those producers. It also isn't limited to producers of commodities that are featured in the major commodity indexes or even the ones that have futures contracts based on them - the index family's scope includes an "alternatives" category that covers companies such as water utilities and companies involved in the production of energy from alternative resources like the sun or the wind. The Alternatives category encompasses companies involved in alternative energy resources, energy efficiency, water utilities and water infrastructure and technology; the sector represents about 4% of the headline index.
"As the world changes, we are prepared for the changes," Rogers said of the decision to include the Alternatives category, pointing out that equity shares are the only way for investors to access those areas of the commodities markets since there is no futures market.
The other five sectors covered by the index are agriculture, base/industrial metals, energy, forest products and precious metals. The sectors are weighted within the index based upon global consumption, while individual equities are weighted within those sectors by float-adjusted market capitalization.
The index family is focused on pure-play companies: Each company must derive at least 50% of its revenues from its operations in the commodity sector it falls into. However, that requirement is waived (to 25%) for companies operating in the water sector, since that tends not to be their only focus.
Not surprisingly, Van Eck, which has already launched a number of equity-based ETFs that cover companies operating in commodities sectors such as steel and coal, has a hard assets producers ETF in registration that will track an unspecified index - probably the headline Rogers Van Eck Hard Assets Producers Index. (Read the prospectus here.)
And what will this index offer investors? Well for one thing, Rogers points out, there are still an awful lot of investors who get nervous as soon as the word "commodity" is uttered. A product based on the index will offer commodities exposure through the companies that operate in that area without actually investing in the commodities themselves.
"Some people just cannot bring themselves to buy commodities for whatever reason, so this is an alternative," Rogers said.
Alternative Approach
And let's not forget the current situation: Given that the Commodity Futures Trading Commission and Senator Joseph Lieberman are taking a hard look at whether funds investing directly in commodities are driving up commodities prices and whether legislative intervention is needed, more than a few investors may be interested in an index (and by extension any product based on it) that offers exposure to commodities through equities rather than futures.
Rogers said the equities-based RVE Hard Assets Producers Index has outperformed most pure commodities indexes recently, but that it should correlate with those indexes over time - with either the futures-based indexes or the RVE index outperforming in any given time period. However, commodity-related equities tend to correlate more closely with equity markets than with commodities markets, which means investors who opt for commodity equities rather than commodity futures could be missing out on the well-documented diversification benefits of commodity futures.
Mosaic: Why Exit Nitrogen?
Yesterday in the news we saw that Mosaic (MOS) was looking to unload the Nitrogen segment of their business. As per CNN, they are seeking the sale of Saskferco, "a private company primarily owned by Mosaic and Investment Saskatchewan, a provincial corporation that seeks to boost Saskatchewan's economy."
At first glance this might not be anything to scoff at. But, at the same time, part of me wonders if the Nitrogen segment of their business is not seeing the continued strong demandof their potash and phosphate segments. Mosaic said it is looking to sell this segment so that it can focus on expansion of their primary business in phosphate and potash.
Maybe Mosaic just wanted to separate themselves from the Saskatchewan investment company who represented the other half in the joint venture of Saskferco. Yet, part of me wonders if they have noticed a developing trend within the industry. Because, after all, they are right smack dab in the middle of fertilizer's secular growth.
I'm going to go sort back through their earnings reports (along with other fertilizer companies) to see if the Nitrogen segments in any of these companies were showing signs of slowing or flat out hurting earnings. We know these companies are facing rising input costs. But that has not been a detriment to them because their revenues are rising faster than their input costs. I'm wondering if possibly the input costs associated to Nitrogen specifically are finally starting to impact the bottom line in that segment.
Again, I might be reading too much into this. But it almost seems as if Mosaic may be 'cashing out' at the top of the Nitrogen trade, while it thinks the underlying trend in potash and phosphates will continue. This would not surprise me one bit, since the company has a front-row seat to the whole agricultural boom we are witnessing.
My bets all along have centered around potash; phosphate and nitrogen were just added bonuses. I'll report back with what I find, if anything. At any rate, good to see them focusing on what I believe to be the main secular growth trend here: the potash itself. That is the nutrient with the brightest future simply because it has the most pricing power. There is ridiculously strong demand for it and very low supply of it. And, additional supply is many years away from coming online (due to construction of mines etc). Most likely this is just a case of me over-analyzing things. But, hey, due diligence is my middle name!
At first glance this might not be anything to scoff at. But, at the same time, part of me wonders if the Nitrogen segment of their business is not seeing the continued strong demandof their potash and phosphate segments. Mosaic said it is looking to sell this segment so that it can focus on expansion of their primary business in phosphate and potash.
Maybe Mosaic just wanted to separate themselves from the Saskatchewan investment company who represented the other half in the joint venture of Saskferco. Yet, part of me wonders if they have noticed a developing trend within the industry. Because, after all, they are right smack dab in the middle of fertilizer's secular growth.
I'm going to go sort back through their earnings reports (along with other fertilizer companies) to see if the Nitrogen segments in any of these companies were showing signs of slowing or flat out hurting earnings. We know these companies are facing rising input costs. But that has not been a detriment to them because their revenues are rising faster than their input costs. I'm wondering if possibly the input costs associated to Nitrogen specifically are finally starting to impact the bottom line in that segment.
Again, I might be reading too much into this. But it almost seems as if Mosaic may be 'cashing out' at the top of the Nitrogen trade, while it thinks the underlying trend in potash and phosphates will continue. This would not surprise me one bit, since the company has a front-row seat to the whole agricultural boom we are witnessing.
My bets all along have centered around potash; phosphate and nitrogen were just added bonuses. I'll report back with what I find, if anything. At any rate, good to see them focusing on what I believe to be the main secular growth trend here: the potash itself. That is the nutrient with the brightest future simply because it has the most pricing power. There is ridiculously strong demand for it and very low supply of it. And, additional supply is many years away from coming online (due to construction of mines etc). Most likely this is just a case of me over-analyzing things. But, hey, due diligence is my middle name!
Thursday, June 26, 2008
Why Throw Tomatoes at Monsanto?
There wasn't a lot to complain about in Monsanto's (NYSE: MON) third-quarter earnings report, released Wednesday, but investors are finding enough disappointing news to send the stock down. Because the stock had nearly doubled in the last year and has a P/E above 40, I can understand how investors might be a little quick to hit the sell button.
Sales were up more than 26% year over year, thanks to increased sales of seeds and Roundup. Seed sales, led by soybean and cotton seeds, were up 20% year over year. Corn seed sales ramped up as well, helping Monsanto pick up market share for the seventh straight year in the space it shares with rivals like Syngenta (NYSE: SYT) and DuPont (NYSE: DD). Corn seed sales were up just 9.4%, but because much of that is Roundup Ready seed, it indirectly contributes to the herbacide revenue, which was up a whopping 54% year over year.
The bottom line looked impressive, too, with Monsanto's income up 42% over the year-ago quarter. Some of that was because of a reduced tax burden, but expanding operating margins also helped the bottom line grow faster than the top line. The results led Monsanto to raise its full-year profit target to $3.40, excluding extras.
So what was the bad news? Revenue wasn't quite as high as analysts had expected, although the bottom line did just fine. The other issue seems to be with margins in the seed business, which slipped a little. Monsanto is expecting margins to bounce back next year as sales of higher-margin biotech seeds pick up.
Investors certainly have a reason to be jittery. At least some of Monsanto's gains have come from the commodities bull market, which has allowed it and other agricultural companies like fertilizer producers Mosaic (NYSE: MOS) or Potash Corp. of Saskatchewan (NYSE: POT) to charge rich prices for their products. Fortunately, Monsanto's drive toward developing seeds with higher yields should help boost its long-run pricing power. Fools who are thinking long-term can probably back away from the sell button and enjoy the ride while it lasts.
Sales were up more than 26% year over year, thanks to increased sales of seeds and Roundup. Seed sales, led by soybean and cotton seeds, were up 20% year over year. Corn seed sales ramped up as well, helping Monsanto pick up market share for the seventh straight year in the space it shares with rivals like Syngenta (NYSE: SYT) and DuPont (NYSE: DD). Corn seed sales were up just 9.4%, but because much of that is Roundup Ready seed, it indirectly contributes to the herbacide revenue, which was up a whopping 54% year over year.
The bottom line looked impressive, too, with Monsanto's income up 42% over the year-ago quarter. Some of that was because of a reduced tax burden, but expanding operating margins also helped the bottom line grow faster than the top line. The results led Monsanto to raise its full-year profit target to $3.40, excluding extras.
So what was the bad news? Revenue wasn't quite as high as analysts had expected, although the bottom line did just fine. The other issue seems to be with margins in the seed business, which slipped a little. Monsanto is expecting margins to bounce back next year as sales of higher-margin biotech seeds pick up.
Investors certainly have a reason to be jittery. At least some of Monsanto's gains have come from the commodities bull market, which has allowed it and other agricultural companies like fertilizer producers Mosaic (NYSE: MOS) or Potash Corp. of Saskatchewan (NYSE: POT) to charge rich prices for their products. Fortunately, Monsanto's drive toward developing seeds with higher yields should help boost its long-run pricing power. Fools who are thinking long-term can probably back away from the sell button and enjoy the ride while it lasts.
UPDATE 1-Goldman Sachs adds Monsanto to conviction buy list
June 26 (Reuters) - Goldman Sachs Group added Monsanto Co (MON.N: Quote, Profile, Research, Stock Buzz) to its Americas conviction buy list, saying the recent weakness in the agricultural products company's stock price was a buying opportunity.
Monsanto on Wednesday reported a higher-than-expected third-quarter profit and raised its full-year forecast, but Wall Street expressed disappointment that the company's results and outlook were not stronger, sending shares down more than 6 percent in Wednesday's trade.
"We believe the outlook is stronger than ever for Monsanto and suggest investors use today's weakness to build or add to positions," analyst Robert Koort wrote in a note to clients. He has a price target of $155 on the stock.
Koort, who raised his 2008 profit estimate on the St. Louis-based company by 5 cents to $3.50 a share, said he expects a 30 percent rise in Monsanto's 2009 earnings.
Shares of Monsanto were down 32 cents at $131.84 in early morning trade on the New York Stock Exchange.
Monsanto on Wednesday reported a higher-than-expected third-quarter profit and raised its full-year forecast, but Wall Street expressed disappointment that the company's results and outlook were not stronger, sending shares down more than 6 percent in Wednesday's trade.
"We believe the outlook is stronger than ever for Monsanto and suggest investors use today's weakness to build or add to positions," analyst Robert Koort wrote in a note to clients. He has a price target of $155 on the stock.
Koort, who raised his 2008 profit estimate on the St. Louis-based company by 5 cents to $3.50 a share, said he expects a 30 percent rise in Monsanto's 2009 earnings.
Shares of Monsanto were down 32 cents at $131.84 in early morning trade on the New York Stock Exchange.
Wednesday, June 25, 2008
Monsanto's Bad Seed
Monsanto's stock drop gives investors a good reason to take another look at buying into the firm.
"It's a buying opportunity," said Mark Gulley of Gulley & Associates. Gulley said that the concerns over margins are overblown because the company had included one-time charges in its operating earnings.
He also noted that while its seeds business is growing faster than the higher-margin traits, aka genetically modified seeds, the growth is for the right reasons. "They've made share gains, and there was an acquisition of a Brazilian corn seed company." Gulley added that the surging crop prices will enable Monsanto to raise its seed prices, which will lead to margin expansion next year.
On Wednesday the company laid out a partial plan to increase seed prices for 2009 with some corn prices seen rising as much as 35%, Reuters reported.
Sales from the company's Roundup and herbicide segment jumped 58.5% to $1.2 billion from $757.0 million. The sale of corn and soybeans was also key to the quarter's success.
The St. Louis-based company also raised its full-year 2008 outlook to $3.40 per share, excluding discontinued operations and one-time charges, and $3.63 per share overall. According to a poll taken by Thomson Financial Wall Street, which typically excludes one-time items, had expected $3.39. According to a poll taken by Reuters though, analysts, on average, had expected earnings of $3.41. The company previously projected full-year earnings of $3.38 to $3.48 per share.
For its third quarter, which ended on May 31, Monsanto (nyse: MON - news - people ) reported sales of $3.6 billion, a 28.6% gain from the $2.8 billion reported in last year's corresponding period. Earnings grew 42.3% to come in at $811.0 million, or $1.45 per share, from $570.0 million, or $1.03 per share.
Although earnings were well ahead of Wall Street's $1.34 prediction, the market was upset that Monsanto couldn't meet or beat $3.7 billion in sales. In fact investors were so annoyed they pushed down Monsanto's stock 2.9%, or $3.99, to $131.80 in late-afternoon trading.
"It's a buying opportunity," said Mark Gulley of Gulley & Associates. Gulley said that the concerns over margins are overblown because the company had included one-time charges in its operating earnings.
He also noted that while its seeds business is growing faster than the higher-margin traits, aka genetically modified seeds, the growth is for the right reasons. "They've made share gains, and there was an acquisition of a Brazilian corn seed company." Gulley added that the surging crop prices will enable Monsanto to raise its seed prices, which will lead to margin expansion next year.
On Wednesday the company laid out a partial plan to increase seed prices for 2009 with some corn prices seen rising as much as 35%, Reuters reported.
Sales from the company's Roundup and herbicide segment jumped 58.5% to $1.2 billion from $757.0 million. The sale of corn and soybeans was also key to the quarter's success.
The St. Louis-based company also raised its full-year 2008 outlook to $3.40 per share, excluding discontinued operations and one-time charges, and $3.63 per share overall. According to a poll taken by Thomson Financial Wall Street, which typically excludes one-time items, had expected $3.39. According to a poll taken by Reuters though, analysts, on average, had expected earnings of $3.41. The company previously projected full-year earnings of $3.38 to $3.48 per share.
For its third quarter, which ended on May 31, Monsanto (nyse: MON - news - people ) reported sales of $3.6 billion, a 28.6% gain from the $2.8 billion reported in last year's corresponding period. Earnings grew 42.3% to come in at $811.0 million, or $1.45 per share, from $570.0 million, or $1.03 per share.
Although earnings were well ahead of Wall Street's $1.34 prediction, the market was upset that Monsanto couldn't meet or beat $3.7 billion in sales. In fact investors were so annoyed they pushed down Monsanto's stock 2.9%, or $3.99, to $131.80 in late-afternoon trading.
Monsanto 3Q profit surges on jump in sales
Monsanto posts 42 percent rise in 3rd-quarter profit on jump in demand for products
ST. LOUIS (AP) -- Agricultural chemicals maker Monsanto Co. says fiscal third-quarter profit surged 42 percent on broad-based 26 percent rise in sales.
The St. Louis-based company said Wednesday it earned $811 million, or $1.45 per share, in the three months ended May 31. That is up from $570 million, or $1.03 per share, for the same quarter in 2007.
The company says its sales jumped to $3.59 billion from $2.84 billion in the year-ago period.
Analysts polled by Thomson Financial expected profit of $1.34 per share on $3.71 billion in revenue. The earnings estimates typically exclude one-time items.
Monsanto also boosted full-year guidance, saying it expects a profit of about $3.40 a share excluding discontinued operations and one-time charges.
ST. LOUIS (AP) -- Agricultural chemicals maker Monsanto Co. says fiscal third-quarter profit surged 42 percent on broad-based 26 percent rise in sales.
The St. Louis-based company said Wednesday it earned $811 million, or $1.45 per share, in the three months ended May 31. That is up from $570 million, or $1.03 per share, for the same quarter in 2007.
The company says its sales jumped to $3.59 billion from $2.84 billion in the year-ago period.
Analysts polled by Thomson Financial expected profit of $1.34 per share on $3.71 billion in revenue. The earnings estimates typically exclude one-time items.
Monsanto also boosted full-year guidance, saying it expects a profit of about $3.40 a share excluding discontinued operations and one-time charges.
Terra Nitrogen: A High Yield Ag Stock to Sink Your Teeth Into
In my recent series of articles highlighting high yield stocks without the false/at-risk dividend rate of falling financial stocks, I want to highlight an agricultural up and comer yielding 12% (perhaps heading a bit lower in the future though...read on).
Terra Nitrogen (TNH) produces and distributes nitrogen fertilizer products for use in both agricultural and industrial markets. Its nitrogen product includes anhydrous ammonia, a form of nitrogen fertilizer and other nitrogen fertilizers, such as urea ammonium nitrate solutions. Its primary market is within the United States.
The stock has a relatively high Beta at 2.2%, but not surprising given the volatility in commodities markets and its fast-mover status. The short float was showing at 9% at the end of May, which is also a slight concern, but not out of the ordinary given its run and speculation in commodities stocks (some stocks are several times that and still continue to run on short selling or old fashioned fundamentals).
A review of Terra's Balance Sheet tells a nice story. From the years ended 2006 to 2007, Terra's cash position increased substantially, while showing no debt going back years. It's rare that a company goes completely debt free given the tax shield provided by optimizing your weighted average cost of capital, but apparently, the company has found it has more cash on hand than it needs, so it is paying it out in the form of dividends and taking on no new debt.
Terra's Accounts Receivables have not increased at an alarming rate and it was able to draw down inventory year over year.; so no writeoffs/writedowns coming as a surprise. Cash flow from Operating Activities far outpaced outgoing cash flows from Investing and Financing Activities. It looks pretty clean; much cleaner than say, a typical Financial or REIT with a similar yield and much greater risk.
The dividends have increased significantly in recent years, in line with its share price. As long as food complex remains constrained and fertilizers are in increasing demand, it is unlikely that earnings will decrease substantially in the near term. When considering the ethanol mandates, flooding in the plains and overall increasing food prices, perhaps some of these factors are priced in, but a fundamental change in the demand for Terra Nitrogen's products seems unlikely.
At a minimum, if investors sense a peak in growth, Terra can continue to pay out a hefty dividend, which will also provide support as investors sense a dividend that is too appealing to pass on...BUT...
Dividend Cut Coming? And How to Play It.
I did come across one interesting article by a fellow contributor at SeekingAlpha where the author performed some calculations showing that the dividend may decrease to roughly 8% per year given a partnership agreement signed with the parent company, Terra Industries (TRA). This has yet to play out on how it will affect the dividend, specifically due some ambiguity in the disclosure, but it appears to have been priced into the stock, as I'm sure it's not a complete secret to institutional holders.
So, how to play this uncertainty in the next dividend payout? Given some articles out there highlighting TNH's juicy yield, while omitting the partnership agreement impact (recent one here that from Yahoo!Finance), there will likely continue to be individual investors piling in. When the distribution is announced, there will likely be some surprised and angry investors expecting to see something in the high $4 range, but instead, shocked by an announced dividend of say, $2.57 (according some author's calculations and corroborated by some additional insiders at SeekingAlpha).
So, this might be a bit imaginative, but I could see this scenario playing out this way: The day of the distribution announcement may be an opportune time to purchase shares following this dip. Holders will be dumping the stock trying to figure out why the dividend was cut, what will happen to future dividends, why everyone else is selling, etc. You can pick up a quality stock with what will then be an 8% or higher dividend and then ride the stock back up when normalcy sets in.
On the topic, you may also want to consider Terra Industries (TRA), the parent company. Over most time periods, the stock has outperformed (note an 800% gain over the past 2 years vs. 500% for TNH), but without the dividends. Granted, the dividend pales in comparison to the past capital appreciation, but that's no guarantee moving forward.
Terra Nitrogen (TNH) produces and distributes nitrogen fertilizer products for use in both agricultural and industrial markets. Its nitrogen product includes anhydrous ammonia, a form of nitrogen fertilizer and other nitrogen fertilizers, such as urea ammonium nitrate solutions. Its primary market is within the United States.
The stock has a relatively high Beta at 2.2%, but not surprising given the volatility in commodities markets and its fast-mover status. The short float was showing at 9% at the end of May, which is also a slight concern, but not out of the ordinary given its run and speculation in commodities stocks (some stocks are several times that and still continue to run on short selling or old fashioned fundamentals).
A review of Terra's Balance Sheet tells a nice story. From the years ended 2006 to 2007, Terra's cash position increased substantially, while showing no debt going back years. It's rare that a company goes completely debt free given the tax shield provided by optimizing your weighted average cost of capital, but apparently, the company has found it has more cash on hand than it needs, so it is paying it out in the form of dividends and taking on no new debt.
Terra's Accounts Receivables have not increased at an alarming rate and it was able to draw down inventory year over year.; so no writeoffs/writedowns coming as a surprise. Cash flow from Operating Activities far outpaced outgoing cash flows from Investing and Financing Activities. It looks pretty clean; much cleaner than say, a typical Financial or REIT with a similar yield and much greater risk.
The dividends have increased significantly in recent years, in line with its share price. As long as food complex remains constrained and fertilizers are in increasing demand, it is unlikely that earnings will decrease substantially in the near term. When considering the ethanol mandates, flooding in the plains and overall increasing food prices, perhaps some of these factors are priced in, but a fundamental change in the demand for Terra Nitrogen's products seems unlikely.
At a minimum, if investors sense a peak in growth, Terra can continue to pay out a hefty dividend, which will also provide support as investors sense a dividend that is too appealing to pass on...BUT...
Dividend Cut Coming? And How to Play It.
I did come across one interesting article by a fellow contributor at SeekingAlpha where the author performed some calculations showing that the dividend may decrease to roughly 8% per year given a partnership agreement signed with the parent company, Terra Industries (TRA). This has yet to play out on how it will affect the dividend, specifically due some ambiguity in the disclosure, but it appears to have been priced into the stock, as I'm sure it's not a complete secret to institutional holders.
So, how to play this uncertainty in the next dividend payout? Given some articles out there highlighting TNH's juicy yield, while omitting the partnership agreement impact (recent one here that from Yahoo!Finance), there will likely continue to be individual investors piling in. When the distribution is announced, there will likely be some surprised and angry investors expecting to see something in the high $4 range, but instead, shocked by an announced dividend of say, $2.57 (according some author's calculations and corroborated by some additional insiders at SeekingAlpha).
So, this might be a bit imaginative, but I could see this scenario playing out this way: The day of the distribution announcement may be an opportune time to purchase shares following this dip. Holders will be dumping the stock trying to figure out why the dividend was cut, what will happen to future dividends, why everyone else is selling, etc. You can pick up a quality stock with what will then be an 8% or higher dividend and then ride the stock back up when normalcy sets in.
On the topic, you may also want to consider Terra Industries (TRA), the parent company. Over most time periods, the stock has outperformed (note an 800% gain over the past 2 years vs. 500% for TNH), but without the dividends. Granted, the dividend pales in comparison to the past capital appreciation, but that's no guarantee moving forward.
UBS Analyst Raises PotashCorp's Price Target
UBS Securities has raised its price target on Potash Corp. (POT) to $285 from $250 on expectations for higher realized fertilizer prices and strong second quarter results due out July 24. The most valuable company on Canada’s benchmark index rose more than 2.5% on Monday, hitting yet another all-time high, and helped drive the TSX up more than 100 points.
UBS analyst Brian MacArthur’s earnings per share forecast for the quarter climbs to $2.68 from $2.34. His 2008 and 2009 forecasts rise to $11.89 and $19.17 from $10.39 and $13.66, respectively. He noted recent potash transactions at around $1000 per metric ton [mt] and prices for another fertilizer, urea, with good support above $600 per mt.
Mr. MacArthur told clients:
PotashCorp is the leading player in one of the fastest-growing segments in the fertilizer business – potash. Given its low-cost operations, which are backed by 100 years of reserves, its associated potash investments, and over 75% of the world’s excess capacity, we believe it is well positioned to meet increasing potash demand.
He also noted that the company is the world’s third-largest phosphate producer and forth in nitrogen.
Merrill Lynch recently boosted its price target on Potash Corp. to $300 from $260.
UBS analyst Brian MacArthur’s earnings per share forecast for the quarter climbs to $2.68 from $2.34. His 2008 and 2009 forecasts rise to $11.89 and $19.17 from $10.39 and $13.66, respectively. He noted recent potash transactions at around $1000 per metric ton [mt] and prices for another fertilizer, urea, with good support above $600 per mt.
Mr. MacArthur told clients:
PotashCorp is the leading player in one of the fastest-growing segments in the fertilizer business – potash. Given its low-cost operations, which are backed by 100 years of reserves, its associated potash investments, and over 75% of the world’s excess capacity, we believe it is well positioned to meet increasing potash demand.
He also noted that the company is the world’s third-largest phosphate producer and forth in nitrogen.
Merrill Lynch recently boosted its price target on Potash Corp. to $300 from $260.
Tuesday, June 24, 2008
FERTILIZER STOCKS SURGE TO HIGHS
Corn supplies could sink to a 35-year low over the course of the next 12 months - dismal news for food companies and alternative energy makers, but terrific for the fortunes of fertilizer makers. Several have reached record levels, with Agrium (AGU) ahead 4%, Potash (POT) ahead 1%, and CF Industries higher by 1%, as well. The department of agriculture said that global corn supplies could sink to the lowest levels since the early ’70s, as midwestern floodings wipes out a chunk of the crops planted earlier this year. Merrill Lynch said that those conditions make the prospects for fertilizer makers very attractive. The firm boosted price targets and estimates for the sector
Monday, June 23, 2008
Betting the farm on agriculture stocks
Shares of food, grain and fertilizer firms are on fire this year thanks to strong demand and surging commodity prices. But are the stocks still worth buying?
NEW YORK (CNNMoney.com) -- Who needs Google and Apple? Agriculture companies are the new "it" stocks.
Grain and food company Bunge (BG) announced this morning that it was buying Corn Products International (CPO), which produces starch and high fructose corn syrup, for $4.8 billion (including debt), or $56 a share. That's a 31% premium to Corn Products' closing price Friday.
Bunge also announced Monday morning that it was substantially raising its earnings forecast for 2008.
Talkback: Will food prices and agriculture stocks keep heading higher?
Later this week, seeds and herbicide firm Monsanto (MON, Fortune 500) is set to report blockbuster fiscal-third quarter results. Analysts expect Monsanto's sales and earnings to surge more than 30%. Shares of Monsanto have gained more than 25% this year.
It should be no surprise that food-related stocks have become Wall Street's latest darlings. Demand for grain, seeds, fertilizer and other agricultural products is particularly strong from emerging markets.
And commodity prices have shot up: The price of corn has risen 59% year-to-date while soybean prices are up 29%.
What's more, some agriculture stocks are also benefiting from the oil boom as rising crude prices has led to a pickup in demand for alternative sources of energy.
Ethanol is the most notable example of this trend and much of the production of that fuel is derived from corn.
But can these stocks keep climbing higher or are they due for a big sell-off the likes of what happened to tech stocks in the earlier part of this decade?
After all, some agriculture companies, such as feed and fertilizer producers Mosaic (MOS, Fortune 500) and Potash (POT), have surged as much as 60% already this year.
Yet, if you dig deeper, it appears that several agriculture stocks still appear to be, while not dirt cheap, at least reasonably valued.
Monsanto, for example, trades at 32 times next year's earnings estimates. That's certainly not a bargain valuation but it's fair when you consider that analysts expect the company's earnings to increase by an average rate of 37% a year for the next few years.
What's more, Monsanto has beaten earnings estimates for the past two quarters so it does have momentum on its side. The company even pays a dividend. Sure, it only yields about 0.7% but Monsanto announced last week that it was boosting the payout by 37%
Bunge and Potash also pay small dividends. And so does one of Monsanto's top competitors, Swiss agricultural giant Syngenta (SYT). In fact, Syngenta's dividend yields a healthy 2.4% - better than the S&P 500's average.
However, for investors that don't want to uh, put all their bushels into one basket, there are some other ways to invest in the sector that offer more diversification.
The Market Vectors Agribusiness ETF (MOO) is an exchange-traded fund that invests in several top agriculture companies. In addition to holding Bunge, Monsanto, Mosaic, Potash and Syngenta, it also owns farm equipment company Deere & Co (DE, Fortune 500) and Archer-Daniels Midland (ADM, Fortune 500). And note that clever ticker symbol - MOO.
Finally, if you're more inclined to bet on the actual commodities instead of agriculture companies, there's a way to do that as well. The PowerShares DB Agriculture (DBA) ETF invests in corn, wheat, soybean and sugar futures. This ETF is up more than 20% so far this year while MOO is up 11%.
NEW YORK (CNNMoney.com) -- Who needs Google and Apple? Agriculture companies are the new "it" stocks.
Grain and food company Bunge (BG) announced this morning that it was buying Corn Products International (CPO), which produces starch and high fructose corn syrup, for $4.8 billion (including debt), or $56 a share. That's a 31% premium to Corn Products' closing price Friday.
Bunge also announced Monday morning that it was substantially raising its earnings forecast for 2008.
Talkback: Will food prices and agriculture stocks keep heading higher?
Later this week, seeds and herbicide firm Monsanto (MON, Fortune 500) is set to report blockbuster fiscal-third quarter results. Analysts expect Monsanto's sales and earnings to surge more than 30%. Shares of Monsanto have gained more than 25% this year.
It should be no surprise that food-related stocks have become Wall Street's latest darlings. Demand for grain, seeds, fertilizer and other agricultural products is particularly strong from emerging markets.
And commodity prices have shot up: The price of corn has risen 59% year-to-date while soybean prices are up 29%.
What's more, some agriculture stocks are also benefiting from the oil boom as rising crude prices has led to a pickup in demand for alternative sources of energy.
Ethanol is the most notable example of this trend and much of the production of that fuel is derived from corn.
But can these stocks keep climbing higher or are they due for a big sell-off the likes of what happened to tech stocks in the earlier part of this decade?
After all, some agriculture companies, such as feed and fertilizer producers Mosaic (MOS, Fortune 500) and Potash (POT), have surged as much as 60% already this year.
Yet, if you dig deeper, it appears that several agriculture stocks still appear to be, while not dirt cheap, at least reasonably valued.
Monsanto, for example, trades at 32 times next year's earnings estimates. That's certainly not a bargain valuation but it's fair when you consider that analysts expect the company's earnings to increase by an average rate of 37% a year for the next few years.
What's more, Monsanto has beaten earnings estimates for the past two quarters so it does have momentum on its side. The company even pays a dividend. Sure, it only yields about 0.7% but Monsanto announced last week that it was boosting the payout by 37%
Bunge and Potash also pay small dividends. And so does one of Monsanto's top competitors, Swiss agricultural giant Syngenta (SYT). In fact, Syngenta's dividend yields a healthy 2.4% - better than the S&P 500's average.
However, for investors that don't want to uh, put all their bushels into one basket, there are some other ways to invest in the sector that offer more diversification.
The Market Vectors Agribusiness ETF (MOO) is an exchange-traded fund that invests in several top agriculture companies. In addition to holding Bunge, Monsanto, Mosaic, Potash and Syngenta, it also owns farm equipment company Deere & Co (DE, Fortune 500) and Archer-Daniels Midland (ADM, Fortune 500). And note that clever ticker symbol - MOO.
Finally, if you're more inclined to bet on the actual commodities instead of agriculture companies, there's a way to do that as well. The PowerShares DB Agriculture (DBA) ETF invests in corn, wheat, soybean and sugar futures. This ETF is up more than 20% so far this year while MOO is up 11%.
Saturday, June 21, 2008
Agriculture Is Fertile Play for Investors
Corn may grow as high as an elephant's eye, but food investments are surging still higher. Voracious demand from developing nations for better diets, coupled with unhelpful acts of God such as the Midwest floods, have pushed up the Dow Jones-AIG Agriculture Sub-Index 42% from a year ago.
Is it too late to cash in on this trend? One way is to buy individual commodity futures in wheat, soybeans, whatever. This is a risky business, though. These creatures are extremely volatile and, a three-month futures contract can go wrong faster than a salmonella outbreak.
A somewhat safer alternative: exchange-traded funds that own farm commodities, managed by pros. PowerShares DB Agriculture ETF has soared 52% over the past 12 months. Or there's stock in companies that supply farmers with necessary stuff, such as fertilizer outfit Potash Corp. of Saskatchewan Inc., up 191%, and seed and herbicide purveyor Monsanto Co., up 108%.
Most farm-oriented securities aren't cheap. Potash trades at a pricey 52 times trailing earnings and Monsanto at 45 times.
So a wiser strategy might be to buy agriculture-related stocks that haven't benefited from the investing euphoria. David Reidel, head of Reidel Research, makes a case that farm-machinery makers and land consolidators in emerging markets are more affordable ways to cash in on the trend.
U.S. machinery makers like Caterpillar Inc. and Deere & Co., along with India's Mahindra & Mahindra Ltd., haven't been part of the rally because of concerns that high steel and energy costs will crimp their margins. The U.S. companies have increased revenue at modest, single-digit rates and the Indian one at a more respectable pace, around 20%. "But as commodity prices stay high, farmers will see the need to buy a new tractor," said Mr. Reidel.
The resulting sales explosion should wake up investors to these stocks, he said. Meanwhile, the trio change hands at about 15 times earnings, a thrifty level.
The farm consolidators are a more speculative play, because bad harvests, seller reluctance and other problems could hinder them. Sweden's Black Earth Farming Ltd. specializes in buying farmland in Russia's southwestern region. This area has some of the richest topsoil on Earth. Similarly, BrasilAgro SA is amassing large plantations in Brazil.
While neither company is profitable, they have good balance sheets and management, Mr. Reidel said. If he is right, they have time on their side.
Is it too late to cash in on this trend? One way is to buy individual commodity futures in wheat, soybeans, whatever. This is a risky business, though. These creatures are extremely volatile and, a three-month futures contract can go wrong faster than a salmonella outbreak.
A somewhat safer alternative: exchange-traded funds that own farm commodities, managed by pros. PowerShares DB Agriculture ETF has soared 52% over the past 12 months. Or there's stock in companies that supply farmers with necessary stuff, such as fertilizer outfit Potash Corp. of Saskatchewan Inc., up 191%, and seed and herbicide purveyor Monsanto Co., up 108%.
Most farm-oriented securities aren't cheap. Potash trades at a pricey 52 times trailing earnings and Monsanto at 45 times.
So a wiser strategy might be to buy agriculture-related stocks that haven't benefited from the investing euphoria. David Reidel, head of Reidel Research, makes a case that farm-machinery makers and land consolidators in emerging markets are more affordable ways to cash in on the trend.
U.S. machinery makers like Caterpillar Inc. and Deere & Co., along with India's Mahindra & Mahindra Ltd., haven't been part of the rally because of concerns that high steel and energy costs will crimp their margins. The U.S. companies have increased revenue at modest, single-digit rates and the Indian one at a more respectable pace, around 20%. "But as commodity prices stay high, farmers will see the need to buy a new tractor," said Mr. Reidel.
The resulting sales explosion should wake up investors to these stocks, he said. Meanwhile, the trio change hands at about 15 times earnings, a thrifty level.
The farm consolidators are a more speculative play, because bad harvests, seller reluctance and other problems could hinder them. Sweden's Black Earth Farming Ltd. specializes in buying farmland in Russia's southwestern region. This area has some of the richest topsoil on Earth. Similarly, BrasilAgro SA is amassing large plantations in Brazil.
While neither company is profitable, they have good balance sheets and management, Mr. Reidel said. If he is right, they have time on their side.
Analysts Applaud Fertilizer Sector
The global commodities boom has meant impressive growth for fertilizer companies and this is only slated to continue, according to a spate of industry-wide price target raises.
RBC Capital Markets Analyst Fai Lee raised targets for Agrium (nyse: AGU - news - people ) and Potash (nyse: POT - news - people ), citing expectations that strong industry fundamentals would continue through 2014. Agrium shares closed Friday's session ahead by 26 cents, or 0.2%, at $108.68 and Potash's stock, after hitting a session high of $237.08, slipped by $2.92, or 1.3%, to close Friday's session at $230.09.
"The extremely strong crop price environment should translate into continued robust demand for fertilizers. We expect potash fertilizer market fundamentals to remain strong through 2014 given limited new capacity additions and growing demand," Lee said (See: Bountiful Times For Fertilizer Sector).
Lee hiked Agrium's price target to $140 from $115 and raised upcoming earnings estimates to $8.31 from $7.06 a share in 2008 and to $10.91 from $8.43 in 2009. Potash's price target was raised to $340 from $300. Lee pushed earnings estimates to $12.26 from $9.83 in 2008 and to $21.33 from $15.02 in 2009.
Separately, Credit Suisse Analyst Mark Connelly raised Potash's target stock price to $280 from $210. He raised 2008 earnings expectations to $11.30 from $10.50 and raised 2009 earnings to $19.13 to from $12 a share on higher realized potash, phosphorous and nitrogen prices.
Analysts polled by Thomson Financial had been expecting Agrium to have earnings of $8.18 in 2008 and $10.22 in 2009. Potash was expected to have earnings of $11.04 in 2008 and $18.36 in 2009.
"While natural gas and sulfur costs do provide some headwinds in the near term, price increases should more than offset cost increases," Connelly said.
On Friday, Agrium said location plans for its Egyptian nitrogen plant fell through--and may result in $280.0-million in write-offs in the upcoming quarter. After voting to relocate Agrium's facility, the Egyptian government offered the company two options: a buyout of its investment in the project and/or granting the company an interest in an adjacent government-owned nitrogen facility.
Although Agrium said it would consider all options in an attempt to fully recover costs, it warned that moving the facility wasn't a viable option since it would require new financing, permits and contracts. The company's warning for possible write-offs in the second-quarter came little more than a week after it raised its second-quarter guidance on strong performance in its retail and wholesale businesses (See: Fertile Environment For Agrium).
RBC Capital Markets Analyst Fai Lee raised targets for Agrium (nyse: AGU - news - people ) and Potash (nyse: POT - news - people ), citing expectations that strong industry fundamentals would continue through 2014. Agrium shares closed Friday's session ahead by 26 cents, or 0.2%, at $108.68 and Potash's stock, after hitting a session high of $237.08, slipped by $2.92, or 1.3%, to close Friday's session at $230.09.
"The extremely strong crop price environment should translate into continued robust demand for fertilizers. We expect potash fertilizer market fundamentals to remain strong through 2014 given limited new capacity additions and growing demand," Lee said (See: Bountiful Times For Fertilizer Sector).
Lee hiked Agrium's price target to $140 from $115 and raised upcoming earnings estimates to $8.31 from $7.06 a share in 2008 and to $10.91 from $8.43 in 2009. Potash's price target was raised to $340 from $300. Lee pushed earnings estimates to $12.26 from $9.83 in 2008 and to $21.33 from $15.02 in 2009.
Separately, Credit Suisse Analyst Mark Connelly raised Potash's target stock price to $280 from $210. He raised 2008 earnings expectations to $11.30 from $10.50 and raised 2009 earnings to $19.13 to from $12 a share on higher realized potash, phosphorous and nitrogen prices.
Analysts polled by Thomson Financial had been expecting Agrium to have earnings of $8.18 in 2008 and $10.22 in 2009. Potash was expected to have earnings of $11.04 in 2008 and $18.36 in 2009.
"While natural gas and sulfur costs do provide some headwinds in the near term, price increases should more than offset cost increases," Connelly said.
On Friday, Agrium said location plans for its Egyptian nitrogen plant fell through--and may result in $280.0-million in write-offs in the upcoming quarter. After voting to relocate Agrium's facility, the Egyptian government offered the company two options: a buyout of its investment in the project and/or granting the company an interest in an adjacent government-owned nitrogen facility.
Although Agrium said it would consider all options in an attempt to fully recover costs, it warned that moving the facility wasn't a viable option since it would require new financing, permits and contracts. The company's warning for possible write-offs in the second-quarter came little more than a week after it raised its second-quarter guidance on strong performance in its retail and wholesale businesses (See: Fertile Environment For Agrium).
Jim Rogers's New Way To Ride Commodities Boom
Who better to orchestrate a way to capitalize on the commodities boom than raw materials investment guru, Jim Rogers?
The investor, best known for co-founding the wildly successful Quantum Fund with George Soros and author of Wall Street must-reads like Hot Commodities and A Bull in China, is teaming up with S-Network Global Indexes to launch The Rogers Van Eck Hard Assets Producers Index. Unlike the Rogers International Commodity Index, the new index tracks the performance of companies that deal in commodities--rather than performance of the commodities themselves.
As yet, neither the index nor related sub-indexes, are tied to investment products but S-Network Vice Chairman Joseph LaCorte said exchange-traded funds linked to the indexes are expected in the next few weeks.
"Investing in the companies that benefit from higher commodities markets like Exxon Mobile and Mosaic (nyse: MOS - news - people ) can be better than investing in futures markets because companies will benefit from higher margins for years to come," said S-Network's vice chairman, Joseph LaCorte.
Commodities prices have been steadily rising in the past few years as growing global populations become more affluent and increase their consumption of food and materials--hiking the world's appetite for raw materials. The Dow Jones AIG Commodities Cash Index has risen nearly 100.0% in the past five years. According to S-Network, back tests conducted on the new index show it would have risen 300.0% over the past five years.
"We think the bull market in commodities still have a long way to go, especially when you look at growth rates in China, India, the Middle East, North Africa and throughout most of the developing world, where demand for just about every commodity is rising at unprecedented rates," Rogers said.
The index comprises 310 stocks from around the world that combined, account for nearly 15.0% of the world's total stock market capitalization. The index divides companies across six sectors: energy, agriculture, base and industrial metals, precious metals and alternatives.
To be included on the index, at least half of a company's annual sales must come from the production or distribution of hard assets or related products and services--water companies being the only exception--among other restrictions. Topping the index are leaders in various agricultural and energy industries like Monsanto (nyse: MON - news - people ), Exxon Mobil (nyse: XOM - news - people ), and Potash Corp. of Saskatchewan (nyse: POT - news - people ).
"The RVEI is global, comprehensive and pure-play. It is also forward-looking, because it covers sectors, such as alternative energy and water, which have not been included in the hard assets category until now," LaCorte said.
S-Network will also publish five related indexes: The RVE Hard Assets Producers Composite, the RVE Hard Assets Producers Liquid Index of 50 Stocks, the RVE Energy Producers Index, the RVE Agricultural Producers Index and the RVE Metals Producers Index
The investor, best known for co-founding the wildly successful Quantum Fund with George Soros and author of Wall Street must-reads like Hot Commodities and A Bull in China, is teaming up with S-Network Global Indexes to launch The Rogers Van Eck Hard Assets Producers Index. Unlike the Rogers International Commodity Index, the new index tracks the performance of companies that deal in commodities--rather than performance of the commodities themselves.
As yet, neither the index nor related sub-indexes, are tied to investment products but S-Network Vice Chairman Joseph LaCorte said exchange-traded funds linked to the indexes are expected in the next few weeks.
"Investing in the companies that benefit from higher commodities markets like Exxon Mobile and Mosaic (nyse: MOS - news - people ) can be better than investing in futures markets because companies will benefit from higher margins for years to come," said S-Network's vice chairman, Joseph LaCorte.
Commodities prices have been steadily rising in the past few years as growing global populations become more affluent and increase their consumption of food and materials--hiking the world's appetite for raw materials. The Dow Jones AIG Commodities Cash Index has risen nearly 100.0% in the past five years. According to S-Network, back tests conducted on the new index show it would have risen 300.0% over the past five years.
"We think the bull market in commodities still have a long way to go, especially when you look at growth rates in China, India, the Middle East, North Africa and throughout most of the developing world, where demand for just about every commodity is rising at unprecedented rates," Rogers said.
The index comprises 310 stocks from around the world that combined, account for nearly 15.0% of the world's total stock market capitalization. The index divides companies across six sectors: energy, agriculture, base and industrial metals, precious metals and alternatives.
To be included on the index, at least half of a company's annual sales must come from the production or distribution of hard assets or related products and services--water companies being the only exception--among other restrictions. Topping the index are leaders in various agricultural and energy industries like Monsanto (nyse: MON - news - people ), Exxon Mobil (nyse: XOM - news - people ), and Potash Corp. of Saskatchewan (nyse: POT - news - people ).
"The RVEI is global, comprehensive and pure-play. It is also forward-looking, because it covers sectors, such as alternative energy and water, which have not been included in the hard assets category until now," LaCorte said.
S-Network will also publish five related indexes: The RVE Hard Assets Producers Composite, the RVE Hard Assets Producers Liquid Index of 50 Stocks, the RVE Energy Producers Index, the RVE Agricultural Producers Index and the RVE Metals Producers Index
Thursday, June 19, 2008
Agribusiness ETF (MOO) Stock Holdings
With many agribusiness stocks continuing to soar, below we highlight the current and expected valuations of the companies that make up the Market Vectors Agribusiness ETF (MOO).
Most of the stocks that are up the most this year are the ones with the highest trailing P/E ratios. Potash (POT) is up 63% and has a P/E ratio of 54.22. Mosaic (MOS) is up 67% and has a P/E of 52. And Monsanto (MON) is up 28% with a P/E of 47.
Not all stocks that make up the ETF have high valuations, however. CF Industries (CF) is up 52% year to date but has a relatively low P/E of 20. While down 15% this year, Deere (DE) has a P/E of 16.78.
But stock prices really move based on forward expectations, and since earnings expectations for these companies in the future are high, their estimated P/E ratios for next year are much lower. POT and MOS both have very high trailing P/Es, but their estimated P/Es are 13.6 and 12.8 respectively. The one that might be the most overvalued based on estimated P/Es is Monsanto (MON) at 33.87.
Is Monsanto Really a Tech Play?
On December 27th of last year I made a call on Monsanto (MON) at $112.43 per share on theupdown.com and since is up 26.86%. There was plenty of static with the call as the name had already had a pretty good run up. I have owned it in my brokerage account since it traded for $66.13. Even at this price I still believe the stock is a long term play on world agricultural technologies. Its hard to believe on March 10th of 2003 this stock sold for just $7.03 a share. These types of runs are generally not long lived, and investors have lost huge sums of money not taking any off of the top. If you have made gains I would take some profits, but I still think this is a good investment going forward.
The reason to invest in Monsanto is the current state of agriculture. The US is flourishing for demand for corn from ethanol and world food consumption. Argentina is supplying larger sums of corn to Latin America and Brazil is using land availability to produce soy for growing demands in China. The demand environment is three pronged. The first is biofuels, as there will be expanded production of ethanol and biodiesel. The second is an increase in world wealth increasing demand for meat, and agricultural commodities are used to feed these animals. Lastly, China's growth has caused them to become an importer as they can no longer produce enough food to feed their people. Since most of the world's farm land is already being cultivated the only way to increase the food supply is to increase yield, and this is Monsanto's forte. Current examples of yields per acre with respect to the United States show how underdeveloped the world's yield is. The US currently has 90 million acres that produce 151 bushels per acre. In comparison, the following countries acres and bushels per acre of corn:
Canada 3 million and 136 bushels per acre
Europe 27 million and 99 bushels per acre
Argentina 10 million and 111 bushels per acre
Brazil 36 million and 58 bushels per acre
China 69 million and 83 bushels per acre
Mexico 18 million and 48 bushels per acre
India 20 million and 32 bushels per acre
If Brazil, Mexico and India would increase their yields to just 100 bushels per acre they would produce 4 billion bushels of corn, and much of the reason they don't have this type of yield is they do not allow some of the biotech traits that Monsanto can offer to farmers. As agricultural commodities increase in price this will further push countries to adopt seed hybrids that Monsanto offers and extend their world wide push into markets. In 1996, their Roundup Ready seeds revolutionized the space, and by 2012 their drought tolerant corn seeds will make more farmland available to grow the commodity. In 2014 this will be further moved by nitrogen utilization corn.
Even with high expectations for Monsanto it is seen that they continually beat expectations they set for themselves. In 2007, they expected their rootworm control to be in 20.8 million acres, corn borer control to be in 42.4 million, glyphosate tolerance in 57.9 million, and triple stack 17.6 million. Initially estimates for 2008 had growth to 26-28 million, 40-42 million, 63-65 million and 25-27 million respectively. These estimates were raised in the second quarter update to 27-29 million, 40-42 million, 65-67 million and 26-28 million. 2010 estimates are at 45-55 million, 60-70 million, 80 million, and 45-55 million.
Much of this growth is seen to be taking place in Brazil and Argentina. In Argentina, hybrid acres will are estimated to grow 20% this year with Monsanto's share moving up from 40% to 45% in 2008. The average price increase seen in this area is up from $23/ac to $26/ac over the same time span. Brazil's hybrid acres are expanding from 23 million to 27 million. Although Monsanto's share looks to be stable they will be charging an increase of $5 per acre for corn seed. Currently, these areas are going to continue to prove their acres for hybrid technologies although there are some obstacles ahead. As the world needs more food, Monsanto is well placed on their technologies.
The reason to invest in Monsanto is the current state of agriculture. The US is flourishing for demand for corn from ethanol and world food consumption. Argentina is supplying larger sums of corn to Latin America and Brazil is using land availability to produce soy for growing demands in China. The demand environment is three pronged. The first is biofuels, as there will be expanded production of ethanol and biodiesel. The second is an increase in world wealth increasing demand for meat, and agricultural commodities are used to feed these animals. Lastly, China's growth has caused them to become an importer as they can no longer produce enough food to feed their people. Since most of the world's farm land is already being cultivated the only way to increase the food supply is to increase yield, and this is Monsanto's forte. Current examples of yields per acre with respect to the United States show how underdeveloped the world's yield is. The US currently has 90 million acres that produce 151 bushels per acre. In comparison, the following countries acres and bushels per acre of corn:
Canada 3 million and 136 bushels per acre
Europe 27 million and 99 bushels per acre
Argentina 10 million and 111 bushels per acre
Brazil 36 million and 58 bushels per acre
China 69 million and 83 bushels per acre
Mexico 18 million and 48 bushels per acre
India 20 million and 32 bushels per acre
If Brazil, Mexico and India would increase their yields to just 100 bushels per acre they would produce 4 billion bushels of corn, and much of the reason they don't have this type of yield is they do not allow some of the biotech traits that Monsanto can offer to farmers. As agricultural commodities increase in price this will further push countries to adopt seed hybrids that Monsanto offers and extend their world wide push into markets. In 1996, their Roundup Ready seeds revolutionized the space, and by 2012 their drought tolerant corn seeds will make more farmland available to grow the commodity. In 2014 this will be further moved by nitrogen utilization corn.
Even with high expectations for Monsanto it is seen that they continually beat expectations they set for themselves. In 2007, they expected their rootworm control to be in 20.8 million acres, corn borer control to be in 42.4 million, glyphosate tolerance in 57.9 million, and triple stack 17.6 million. Initially estimates for 2008 had growth to 26-28 million, 40-42 million, 63-65 million and 25-27 million respectively. These estimates were raised in the second quarter update to 27-29 million, 40-42 million, 65-67 million and 26-28 million. 2010 estimates are at 45-55 million, 60-70 million, 80 million, and 45-55 million.
Much of this growth is seen to be taking place in Brazil and Argentina. In Argentina, hybrid acres will are estimated to grow 20% this year with Monsanto's share moving up from 40% to 45% in 2008. The average price increase seen in this area is up from $23/ac to $26/ac over the same time span. Brazil's hybrid acres are expanding from 23 million to 27 million. Although Monsanto's share looks to be stable they will be charging an increase of $5 per acre for corn seed. Currently, these areas are going to continue to prove their acres for hybrid technologies although there are some obstacles ahead. As the world needs more food, Monsanto is well placed on their technologies.
Fertilizer Stocks Defy Gravity
Rob Curran of Dow Jones Newswires has the following dirt on fertilizer stocks:
Sometimes the laws of technical analysis, and gravity, temporarily fail. The question is: how much pain can a bear take on fertilizer stocks before they come back down to earth?
The charts say these stocks are stretched, but caveat emptor: the charts said the same thing 10%, 20% and 50% ago. Some say as long as the Fed’s hands are tied by financial worries, they will continue to sit on the other side of the seesaw to banking stocks.
Fertilizer, it’s good for plants. How about your portfolio?
Stocks like Sociedad Quimica y Minera de Chile, Mosaic and Potash Corp. of Saskatchewan are not so much momentum plays as rocket rides this year. Since June 6 Mosaic shares have risen more than 15% to $160 -– compared with its 52-week low of $32.50. American Depositary Shares of Chile’s Sociedad Quimica, meanwhile, have more than doubled in the space of three months to more than $54. Peers like Agrium and CF Industries Holdings Inc. are following similar paths.
Granted, the outlook is indisputably bright for these companies. Fundamentals for fertilizers have never been better, as farmers seek to squeeze more yield out of limited land and corn prices set records daily. Every quarterly earnings report brings another update on higher prices fetched for fertilizers. There are no signs that alternatives for increasing crop yields present a competitive threat.
Nevertheless, some observers, like Tobias Levkovich at Citigroup, say the rate of gain in the stocks is too reminiscent of bubbles in homebuilder stocks earlier this decade and technology stocks at the turn of the decade. Both of those sectors also had bright prospects.
“It’s a train wreck waiting to happen,” said one longtime trader at a mid-sized Wall Street firm.
And if fertilizer was not a hot enough sector, one of the stocks in the sector is involved in one of the only other islands of strength in the stock market — alternative energy. Recently, Chile’s SQM took part in a conference on batteries for electric cars. In addition to fertilizer, the company makes the chemicals lithium carbonate and lithium hydroxide and says its committed to the “development of more efficient” hybrid and electronic cars.
Sometimes the laws of technical analysis, and gravity, temporarily fail. The question is: how much pain can a bear take on fertilizer stocks before they come back down to earth?
The charts say these stocks are stretched, but caveat emptor: the charts said the same thing 10%, 20% and 50% ago. Some say as long as the Fed’s hands are tied by financial worries, they will continue to sit on the other side of the seesaw to banking stocks.
Fertilizer, it’s good for plants. How about your portfolio?
Stocks like Sociedad Quimica y Minera de Chile, Mosaic and Potash Corp. of Saskatchewan are not so much momentum plays as rocket rides this year. Since June 6 Mosaic shares have risen more than 15% to $160 -– compared with its 52-week low of $32.50. American Depositary Shares of Chile’s Sociedad Quimica, meanwhile, have more than doubled in the space of three months to more than $54. Peers like Agrium and CF Industries Holdings Inc. are following similar paths.
Granted, the outlook is indisputably bright for these companies. Fundamentals for fertilizers have never been better, as farmers seek to squeeze more yield out of limited land and corn prices set records daily. Every quarterly earnings report brings another update on higher prices fetched for fertilizers. There are no signs that alternatives for increasing crop yields present a competitive threat.
Nevertheless, some observers, like Tobias Levkovich at Citigroup, say the rate of gain in the stocks is too reminiscent of bubbles in homebuilder stocks earlier this decade and technology stocks at the turn of the decade. Both of those sectors also had bright prospects.
“It’s a train wreck waiting to happen,” said one longtime trader at a mid-sized Wall Street firm.
And if fertilizer was not a hot enough sector, one of the stocks in the sector is involved in one of the only other islands of strength in the stock market — alternative energy. Recently, Chile’s SQM took part in a conference on batteries for electric cars. In addition to fertilizer, the company makes the chemicals lithium carbonate and lithium hydroxide and says its committed to the “development of more efficient” hybrid and electronic cars.
Wednesday, June 18, 2008
CF Industries: A Fertilizer Company That Doesn't Stink
I was on Fox Business Network’s Happy Hour show last night. Co-host Cody Willard and I discussed the agricultural sector. Cody peppered me with questions about the sector, injecting his opinions that the sector may itself be overgrown.
My response was that I believe that seed companies like Monsanto (MON) are too richly valued and do not make compelling investments at this juncture. For the record, I have traded in and out of MON the past one or two years but have no positions at the current time.
On the other hand, I strongly support investing in fertilizer companies, my favorite one being CF Industries (CF). The fertilizer stocks are still trading at multiples below their growth rate. Furthermore, they have tremendous pricing power.
As of the taping of the show, CF was trading at 11 times full year 2008 earnings estimates. 2009 earnings growth is expected to be 33% according to analysts’ consensus estimates. Even if that growth rate is too high, CF deserves a multiple of more than 11 times earnings.
Disclosure: At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of CF --- although positions can change at any time
My response was that I believe that seed companies like Monsanto (MON) are too richly valued and do not make compelling investments at this juncture. For the record, I have traded in and out of MON the past one or two years but have no positions at the current time.
On the other hand, I strongly support investing in fertilizer companies, my favorite one being CF Industries (CF). The fertilizer stocks are still trading at multiples below their growth rate. Furthermore, they have tremendous pricing power.
As of the taping of the show, CF was trading at 11 times full year 2008 earnings estimates. 2009 earnings growth is expected to be 33% according to analysts’ consensus estimates. Even if that growth rate is too high, CF deserves a multiple of more than 11 times earnings.
Disclosure: At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of CF --- although positions can change at any time
Tuesday, June 17, 2008
Two-Day Rally for Agribusiness ETF
Market Wrap-Up
Coming into this week, traders knew financial-services stocks would be front and center, given the fact that many big Wall Street players were due to announce their second-quarter earnings. That has certainly been the case so far. Goldman Sachs (GS) announced Tuesday a $2.1 billion profit, or $4.58 a share, a tally that was better than analyst estimates. Ordinarily, results like that would carry the day.
But according to Bloomberg, a Goldman analyst also issued a report the same day warning of the troubles the financial-services industry still has to confront before it is out of the woods. The sector traded down all day. That was coupled with data showing the Producer Price Index, a measure of inflation, climbed 1.4% in May while housing starts fell to an annual rate of 975,000. The Dow Jones Industrial Average lost 109 points to 12,160. Oil closed at $133 per barrel.
Winners
The agriculture sector experienced a two-day rally. The Market Vectors Agribusiness ETF (MOO) gained 2.2% on the back of bullish analyst sentiments. This ETF owns companies like Potash (POT), Mosaic (MOS), Monsanto (MON) and Deere (DE).
Coming into this week, traders knew financial-services stocks would be front and center, given the fact that many big Wall Street players were due to announce their second-quarter earnings. That has certainly been the case so far. Goldman Sachs (GS) announced Tuesday a $2.1 billion profit, or $4.58 a share, a tally that was better than analyst estimates. Ordinarily, results like that would carry the day.
But according to Bloomberg, a Goldman analyst also issued a report the same day warning of the troubles the financial-services industry still has to confront before it is out of the woods. The sector traded down all day. That was coupled with data showing the Producer Price Index, a measure of inflation, climbed 1.4% in May while housing starts fell to an annual rate of 975,000. The Dow Jones Industrial Average lost 109 points to 12,160. Oil closed at $133 per barrel.
Winners
The agriculture sector experienced a two-day rally. The Market Vectors Agribusiness ETF (MOO) gained 2.2% on the back of bullish analyst sentiments. This ETF owns companies like Potash (POT), Mosaic (MOS), Monsanto (MON) and Deere (DE).
No Quit in Farm Related Stocks
With corn prices having climbed to another high in Monday’s trading, extending the records reached over the course of the last week, shares of agriculture plays continued to mount an assault on valuations. Shares of fertilizer maker Agrium (AGU) moved up 3% in the sesssion, while Mosiac (MOS) reached a high of $157 before backing off, and CF Industries (CF) added 4%. All three have moved to new highs in the session. The gains have come as ragged weather throughout the midwest has kept farmers from planting as much corn seed as experts expected, and the demand for alternative fuels continued to divert some of the corn crop to the biofuels market.
Get Aggressive with Agrium
Agrium, Inc. (NYSE: AGU - News) is growing through acquisition and incremental expansion of existing operations. The proposed UAP Holding Corp. acquisition is likely to drive revenues and profit for Agrium on the back of an expanded product line in the major business segment.
Supply/demand is expected to remain strong for nitrogen and phosphate fertilizers through 2011 and the company has high leverage to increasing product prices. Agrium also has significant free cash flow. As a result, we rate the shares a Buy with a target of $118.00. This is 17.0x our 2008 estimate. Currently, Agrium is trading at 14.9x our 2008 estimate of $6.95.
In 2008, the company expects synergies of approximately $20 million and $80 million in 2009. The strategy is to increase seed sales and increase private label sales. The company expects good growth in the seed sales and crop protection chemicals business in 2008, when the product lines are expected to expand with the UAP acquisition. Margins should be elevated for at least 2-3 years
Supply/demand is expected to remain strong for nitrogen and phosphate fertilizers through 2011 and the company has high leverage to increasing product prices. Agrium also has significant free cash flow. As a result, we rate the shares a Buy with a target of $118.00. This is 17.0x our 2008 estimate. Currently, Agrium is trading at 14.9x our 2008 estimate of $6.95.
In 2008, the company expects synergies of approximately $20 million and $80 million in 2009. The strategy is to increase seed sales and increase private label sales. The company expects good growth in the seed sales and crop protection chemicals business in 2008, when the product lines are expected to expand with the UAP acquisition. Margins should be elevated for at least 2-3 years
Monday, June 16, 2008
UPDATE 1-Citigroup adds Terra to top-picks live list
June 16 (Reuters) - Citigroup added Terra Industries Inc (TRA.N: Quote, Profile, Research, Stock Buzz) to its top-picks live list, saying it sees stronger earnings for the fertilizer firm over the next 12 months as farmers shift to fertilizer intensive corn production.
"Midwest floods have negatively impacted the 2008 corn crop... We expect U.S. farmers to respond by shifting acreage back into fertilizer intensive corn in spring-09," analyst Brian Yu wrote in a note to clients.
The analyst, who has a "buy" rating on Terra, also cited continuing strength in nitrogen product prices as one of the catalysts for the stock.
Yu said he expects the U.S. corn acreage to snap back to 94 million acres or more in 2009.
Shares of Terra were up 5 percent at $52.12 in morning trade on the New York Stock Exchange.
"Midwest floods have negatively impacted the 2008 corn crop... We expect U.S. farmers to respond by shifting acreage back into fertilizer intensive corn in spring-09," analyst Brian Yu wrote in a note to clients.
The analyst, who has a "buy" rating on Terra, also cited continuing strength in nitrogen product prices as one of the catalysts for the stock.
Yu said he expects the U.S. corn acreage to snap back to 94 million acres or more in 2009.
Shares of Terra were up 5 percent at $52.12 in morning trade on the New York Stock Exchange.
Agricultural chemicals mixed
Potash and Monsanto rise as analyst predicts higher potash prices
NEW YORK (AP) -- Shares of agricultural chemical companies were mixed Monday, after a Citi Investment Research analyst forecast higher potash prices by the end of the year.
Citi analyst Brian Yu said there's an "increasing likelihood" that worldwide spot potash prices will reach $1,000 per ton in the fourth quarter.
Some agricultural chemical stocks, like Potash Corp. of Saskatchewan Inc. and Monsanto Co., bucked the trend on Wall Street, where stocks declined on higher oil prices.
How shares of major agricultural chemical companies fared Monday:
DuPont Co., down 25 cents to $46.95.
Dow Chemical Co., down 28 cents to $38.77.
Potash Corp. of Saskatchewan, up $3.77 to $229.88.
Monsanto, up 50 cents to $137.35.
NEW YORK (AP) -- Shares of agricultural chemical companies were mixed Monday, after a Citi Investment Research analyst forecast higher potash prices by the end of the year.
Citi analyst Brian Yu said there's an "increasing likelihood" that worldwide spot potash prices will reach $1,000 per ton in the fourth quarter.
Some agricultural chemical stocks, like Potash Corp. of Saskatchewan Inc. and Monsanto Co., bucked the trend on Wall Street, where stocks declined on higher oil prices.
How shares of major agricultural chemical companies fared Monday:
DuPont Co., down 25 cents to $46.95.
Dow Chemical Co., down 28 cents to $38.77.
Potash Corp. of Saskatchewan, up $3.77 to $229.88.
Monsanto, up 50 cents to $137.35.
Friday, June 13, 2008
Terra Industries: Fertile Company in a Fertile Sector
Terra Industries, Inc. (TRA) is operating in the high-growth fertilizer sector, bearing the favor of strong demand and higher selling prices. But the company has been helping its own cause by cutting costs and increasing operational efficiencies, which helped it grow its profit to over $100 million last quarter, up from just $5.9 million in the same period last year. In addition, based upon projected full-year earnings, Terra's stock price looks undervalued, priced at a discount to the overall market.
Terra Industries, Inc. produces and sells nitrogen and methanol products for agricultural and industrial markets both domestically and internationally. The company was founded in 1964, carries a market cap. of $4.35 billion and is headquartered in Sioux City, Iowa.
Agricultural Production Is Under Pressure
With the recent rash of floods and storms across the Midwest damaging the production capacities of the agricultural sector, the already lean supply side has suffered a substantial hit. Previous to these developments, producers had already been scrambling to boost their yields in order to meet growing domestic and global demand, frequently turning to fertilizers and nutrient additives to accomplish this objective. In turn, fertilizer companies profits have been soaring.
Another Solid Quarter
Terra's first-quarter results, reported on Apr 24, are in line with this trend. Revenue for the quarter was up over 14% from the same period last year, to $574.7 million. Net income sky-rocketed, up to $100.2 million from $5.9 million in the same period last year. This produced earnings of 97 cents, easily trumping the consensus estimate of 89 cents.
Cutting Costs
Terra benefited from surging demand and higher selling prices, but the company also helped its cause by being frugal and cutting expenses. The company's cost of sales dropped to $407 million from $422 million. This helped boost the company's operating income to $168 million from just $67 million in the same period last year.
Estimates Are Rising
Analyst estimates have been on the rise, in accordance with the continued impressive results of the entire industry, including Terra. Within the last 90 days, the current-year estimate has advanced to $4.50 per share from $4.20 per share.
Based upon these earnings projections, this stock looks like a bargain, carrying a forward P/E multiple of just 10.5X.
In spite of the fundamental strength, shares of TRA have been mostly range-bound in 2008. Having said that, this stock is once again pressuring its upside resistance level just short of $50. Importantly, over the last two months, shares of TRA have been logging higher lows when retracing to the bottom half of the trading channel. This is a bullish signal. Throw in the low valuations, and this stock looks very well positioned, both fundamentally and technically, to advance beyond short-term resistance and accelerate into higher territory.
Terra Industries, Inc. produces and sells nitrogen and methanol products for agricultural and industrial markets both domestically and internationally. The company was founded in 1964, carries a market cap. of $4.35 billion and is headquartered in Sioux City, Iowa.
Agricultural Production Is Under Pressure
With the recent rash of floods and storms across the Midwest damaging the production capacities of the agricultural sector, the already lean supply side has suffered a substantial hit. Previous to these developments, producers had already been scrambling to boost their yields in order to meet growing domestic and global demand, frequently turning to fertilizers and nutrient additives to accomplish this objective. In turn, fertilizer companies profits have been soaring.
Another Solid Quarter
Terra's first-quarter results, reported on Apr 24, are in line with this trend. Revenue for the quarter was up over 14% from the same period last year, to $574.7 million. Net income sky-rocketed, up to $100.2 million from $5.9 million in the same period last year. This produced earnings of 97 cents, easily trumping the consensus estimate of 89 cents.
Cutting Costs
Terra benefited from surging demand and higher selling prices, but the company also helped its cause by being frugal and cutting expenses. The company's cost of sales dropped to $407 million from $422 million. This helped boost the company's operating income to $168 million from just $67 million in the same period last year.
Estimates Are Rising
Analyst estimates have been on the rise, in accordance with the continued impressive results of the entire industry, including Terra. Within the last 90 days, the current-year estimate has advanced to $4.50 per share from $4.20 per share.
Based upon these earnings projections, this stock looks like a bargain, carrying a forward P/E multiple of just 10.5X.
In spite of the fundamental strength, shares of TRA have been mostly range-bound in 2008. Having said that, this stock is once again pressuring its upside resistance level just short of $50. Importantly, over the last two months, shares of TRA have been logging higher lows when retracing to the bottom half of the trading channel. This is a bullish signal. Throw in the low valuations, and this stock looks very well positioned, both fundamentally and technically, to advance beyond short-term resistance and accelerate into higher territory.
Agricultural Chemicals Hit New Highs
After a month long sell-off that saw Mosaic Company (MOS), Potash Corporation of Saskatchewan (POT), and Monsanto Company (MON) dip from 4-15%, the agricultural chemical companies have rebounded to new highs within the last two weeks. Monsanto is still close to a new high with Mosaic and Potash striking new highs on Wednesday.
Corn continues to rally which makes the fertilizers and the seeds required for crop production that much more demanded. Corn is at $7, a new high and the use of crops for fuel is making agriculture follow crude oil in a very strong rally.
I like Potash the best of the three as analyst continue to upgrade their expectations for earnings in the current quarter, the next quarter, for the year and for the next year. In the current quarter, analysts have increased their views of the company’s earnings 20% over the past 90 days. And for the current year, analysts have increased their view of the company’s earning potential 43% in the same period.
Monsanto is more of a steady grower without the large increases in expectations. In fact, analysts are predicting a loss in the next quarter of 22 cents, with the overall year still being very profitable for the seed producer.
Mosaic has taken a slight dip in earnings expectations in the current quarter and the next quarter. Next year is where Mosaic looks to really grow. Analysts feel the earnings will be 76% better today than they felt about the same earnings period three months ago.
Agricultural Chemical companies, after a pause, are moving higher and now is a good time to add to positions in Potash, Mosaic, and Monsanto.
Corn continues to rally which makes the fertilizers and the seeds required for crop production that much more demanded. Corn is at $7, a new high and the use of crops for fuel is making agriculture follow crude oil in a very strong rally.
I like Potash the best of the three as analyst continue to upgrade their expectations for earnings in the current quarter, the next quarter, for the year and for the next year. In the current quarter, analysts have increased their views of the company’s earnings 20% over the past 90 days. And for the current year, analysts have increased their view of the company’s earning potential 43% in the same period.
Monsanto is more of a steady grower without the large increases in expectations. In fact, analysts are predicting a loss in the next quarter of 22 cents, with the overall year still being very profitable for the seed producer.
Mosaic has taken a slight dip in earnings expectations in the current quarter and the next quarter. Next year is where Mosaic looks to really grow. Analysts feel the earnings will be 76% better today than they felt about the same earnings period three months ago.
Agricultural Chemical companies, after a pause, are moving higher and now is a good time to add to positions in Potash, Mosaic, and Monsanto.
Agricultural Chemicals Hit New Highs
After a month long sell-off that saw Mosaic Company (MOS), Potash Corporation of Saskatchewan (POT), and Monsanto Company (MON) dip from 4-15%, the agricultural chemical companies have rebounded to new highs within the last two weeks. Monsanto is still close to a new high with Mosaic and Potash striking new highs on Wednesday.
Corn continues to rally which makes the fertilizers and the seeds required for crop production that much more demanded. Corn is at $7, a new high and the use of crops for fuel is making agriculture follow crude oil in a very strong rally.
I like Potash the best of the three as analyst continue to upgrade their expectations for earnings in the current quarter, the next quarter, for the year and for the next year. In the current quarter, analysts have increased their views of the company’s earnings 20% over the past 90 days. And for the current year, analysts have increased their view of the company’s earning potential 43% in the same period.
Monsanto is more of a steady grower without the large increases in expectations. In fact, analysts are predicting a loss in the next quarter of 22 cents, with the overall year still being very profitable for the seed producer.
Mosaic has taken a slight dip in earnings expectations in the current quarter and the next quarter. Next year is where Mosaic looks to really grow. Analysts feel the earnings will be 76% better today than they felt about the same earnings period three months ago.
Agricultural Chemical companies, after a pause, are moving higher and now is a good time to add to positions in Potash, Mosaic, and Monsanto.
Corn continues to rally which makes the fertilizers and the seeds required for crop production that much more demanded. Corn is at $7, a new high and the use of crops for fuel is making agriculture follow crude oil in a very strong rally.
I like Potash the best of the three as analyst continue to upgrade their expectations for earnings in the current quarter, the next quarter, for the year and for the next year. In the current quarter, analysts have increased their views of the company’s earnings 20% over the past 90 days. And for the current year, analysts have increased their view of the company’s earning potential 43% in the same period.
Monsanto is more of a steady grower without the large increases in expectations. In fact, analysts are predicting a loss in the next quarter of 22 cents, with the overall year still being very profitable for the seed producer.
Mosaic has taken a slight dip in earnings expectations in the current quarter and the next quarter. Next year is where Mosaic looks to really grow. Analysts feel the earnings will be 76% better today than they felt about the same earnings period three months ago.
Agricultural Chemical companies, after a pause, are moving higher and now is a good time to add to positions in Potash, Mosaic, and Monsanto.
Calming Proposals for Volatile Ag Markets
Calmer seas could be on the horizon for the volatile North American agricultural futures markets, which have seen dramatic price swings and massive trade volumes over the past year. Faced with complaints that futures prices were out of tune with cash bids in the countryside, and that the markets were lacking transparency, the U.S. Commodity Futures Trading Commission [CFTC] - the government regulator watching over the futures trade - announced some initiatives June 3 that could help steady the rocking boat.
The increasing use of agricultural products to produce fuel (such as corn for ethanol, or soybeans for biodiesel), the rising demand for food from countries with expanding economies (such as China and India), together with some of the tightest international stocks of grains and oilseeds in decades, helped drive futures prices for corn, wheat, soybeans and other commodities higher over the past year. Adding fuel to that fire, however, was a substantial flood of speculative money from investors who were not traditional players in the agricultural markets.
While speculators have always been a factor in the agricultural markets, the so-called index funds are a relatively new player in recent years, as they diversify out of the equity and fixed-income markets and into agricultural commodities. Index funds usually comprise large pools of money from corporate and government pension funds, sovereign wealth funds and institutional investors. Rather than play both sides of the market, the index funds are usually only on the long side of the trade, gobbling up large positions with a seemingly insatiable appetite.
Eponymous Term
They are aptly called index funds because they trade various commodity indexes, such as those named after the Commodity Research Bureau, Standard & Poor's and Goldman Sachs. They'll buy futures of each commodity in the index at the same proportion as the commodity is found in the index. For example, if canola is 2% of the CRB index, then the index funds would be long the equivalent amount of Winnipeg canola futures.
Some recent estimates have the long-only index funds holding positions of about $180 billion to as much as $260 billion across all commodities. By comparison, the index funds were holding a stake closer to $13 billion in the agricultural futures markets only five years ago.
The CFTC only began tracking the index fund movements in the agricultural future markets in their weekly Commitments of Traders reports in January 2007. At that time, as an example, the index funds were holding 364,320 long positions in Chicago Board of Trade corn futures, or 17.2% of the total volumes in the commodity. As of May 27, 2008, that total was sitting at 470,044, or 22.3% of the total open interest.
The complaint amongst many traders has been that the sheer size of the index fund money distorts prices by exaggerating the futures' values compared with what the actual physical commodities are being sold for in the country. It's made life difficult for longtime grain traders and analysts who are accustomed to basing their market predictions on fundamental factors such as the weather, available supplies and export demand, and on technicals - charts displaying such things as moving averages and support and resistance levels.
Grain companies, who use the futures market as a hedging tool, were also upset that the soaring futures prices caused their margin fees to increase, making hedging that much more difficult.
As a result of the higher margin calls, more transactions are taking place as agricultural swaps. Swaps - or over-the-counter trades - allow two parties to tailor a transaction to their own specific needs, and may include commodities or other financial instruments that are not offered at any exchange. There is currently no transparency in the markets when it comes to swaps, which largely escape regulatory attention.
During hearings last month in Washington, D.C., the CFTC was criticized for inadequately monitoring the impact of speculative investors on commodity markets. The chairman of the Senate Homeland Security and Government Affairs Committee, Joseph Lieberman, said May 20 that he is pondering legislation limiting the participation of large institutional investors in commodity markets.
CFTC regulators tried to assure U.S. lawmakers that commodity index funds and other speculative investors were not the reason for record high prices for energy and agricultural commodities. But the CFTC appears to be reconsidering its stance, or at least is seeking more assurances that the commodity markets are working properly.
The CFTC's new policy initiatives are expected to bring some additional transparency to the agriculture markets, but are also creating some nervousness amongst traders as they wait on further details as to how the proposals will actually be implemented.
Some of the market initiatives include:
A review of trader reporting and classification, with the intent of developing a proposal that would require more detailed information from index traders and swap dealers.
The withdrawal of proposed rulemakings that would have increased the speculative position limits on certain agricultural futures contracts.
The creation of greater risk management choices for farmers and agribusinesses, including the clearing of agricultural swaps.
An investigation into the February/March 2008 run-up in cotton futures markets. (Cotton futures rallied in line with grains, oilseeds and other agricultural commodities, despite the fact that there was no fundamental reason for them to do so - a sign to some market players of the disruptive nature of the fund money).
Efforts to work with agricultural lenders to help facilitate a better understanding of the financing issues faced by agricultural market participants, thus dealing with some of the issues tied to higher margins.
Additional studies into coming up with solutions for improving the relationship between the futures and cash markets and determining margins and daily price limits, among other things.
Overall, analysts don't expect the CFTC to impose any regulations that would seriously hurt investment opportunities in the agricultural markets. Rather, most participants seem to be of the opinion that the CFTC will move slowly when it comes to implementing any of their initiatives.
The increasing use of agricultural products to produce fuel (such as corn for ethanol, or soybeans for biodiesel), the rising demand for food from countries with expanding economies (such as China and India), together with some of the tightest international stocks of grains and oilseeds in decades, helped drive futures prices for corn, wheat, soybeans and other commodities higher over the past year. Adding fuel to that fire, however, was a substantial flood of speculative money from investors who were not traditional players in the agricultural markets.
While speculators have always been a factor in the agricultural markets, the so-called index funds are a relatively new player in recent years, as they diversify out of the equity and fixed-income markets and into agricultural commodities. Index funds usually comprise large pools of money from corporate and government pension funds, sovereign wealth funds and institutional investors. Rather than play both sides of the market, the index funds are usually only on the long side of the trade, gobbling up large positions with a seemingly insatiable appetite.
Eponymous Term
They are aptly called index funds because they trade various commodity indexes, such as those named after the Commodity Research Bureau, Standard & Poor's and Goldman Sachs. They'll buy futures of each commodity in the index at the same proportion as the commodity is found in the index. For example, if canola is 2% of the CRB index, then the index funds would be long the equivalent amount of Winnipeg canola futures.
Some recent estimates have the long-only index funds holding positions of about $180 billion to as much as $260 billion across all commodities. By comparison, the index funds were holding a stake closer to $13 billion in the agricultural futures markets only five years ago.
The CFTC only began tracking the index fund movements in the agricultural future markets in their weekly Commitments of Traders reports in January 2007. At that time, as an example, the index funds were holding 364,320 long positions in Chicago Board of Trade corn futures, or 17.2% of the total volumes in the commodity. As of May 27, 2008, that total was sitting at 470,044, or 22.3% of the total open interest.
The complaint amongst many traders has been that the sheer size of the index fund money distorts prices by exaggerating the futures' values compared with what the actual physical commodities are being sold for in the country. It's made life difficult for longtime grain traders and analysts who are accustomed to basing their market predictions on fundamental factors such as the weather, available supplies and export demand, and on technicals - charts displaying such things as moving averages and support and resistance levels.
Grain companies, who use the futures market as a hedging tool, were also upset that the soaring futures prices caused their margin fees to increase, making hedging that much more difficult.
As a result of the higher margin calls, more transactions are taking place as agricultural swaps. Swaps - or over-the-counter trades - allow two parties to tailor a transaction to their own specific needs, and may include commodities or other financial instruments that are not offered at any exchange. There is currently no transparency in the markets when it comes to swaps, which largely escape regulatory attention.
During hearings last month in Washington, D.C., the CFTC was criticized for inadequately monitoring the impact of speculative investors on commodity markets. The chairman of the Senate Homeland Security and Government Affairs Committee, Joseph Lieberman, said May 20 that he is pondering legislation limiting the participation of large institutional investors in commodity markets.
CFTC regulators tried to assure U.S. lawmakers that commodity index funds and other speculative investors were not the reason for record high prices for energy and agricultural commodities. But the CFTC appears to be reconsidering its stance, or at least is seeking more assurances that the commodity markets are working properly.
The CFTC's new policy initiatives are expected to bring some additional transparency to the agriculture markets, but are also creating some nervousness amongst traders as they wait on further details as to how the proposals will actually be implemented.
Some of the market initiatives include:
A review of trader reporting and classification, with the intent of developing a proposal that would require more detailed information from index traders and swap dealers.
The withdrawal of proposed rulemakings that would have increased the speculative position limits on certain agricultural futures contracts.
The creation of greater risk management choices for farmers and agribusinesses, including the clearing of agricultural swaps.
An investigation into the February/March 2008 run-up in cotton futures markets. (Cotton futures rallied in line with grains, oilseeds and other agricultural commodities, despite the fact that there was no fundamental reason for them to do so - a sign to some market players of the disruptive nature of the fund money).
Efforts to work with agricultural lenders to help facilitate a better understanding of the financing issues faced by agricultural market participants, thus dealing with some of the issues tied to higher margins.
Additional studies into coming up with solutions for improving the relationship between the futures and cash markets and determining margins and daily price limits, among other things.
Overall, analysts don't expect the CFTC to impose any regulations that would seriously hurt investment opportunities in the agricultural markets. Rather, most participants seem to be of the opinion that the CFTC will move slowly when it comes to implementing any of their initiatives.
Agrium Raises Guidance; Analysts Still Expect Higher Earnings
Agrium Inc. (AGU) impressed everyone on Wednesday by hiking its second-quarter earnings guidance from a range of C$1.92 - C$2.22 a share to between C$2.80 and C$3.00.
But analysts figure that forecast is still too low, because it does not include any contribution from the recent acquisition of UAP Holdings Corp. UBS Securities analyst Brian MacArthur wrote that he expects earnings of C$3.20 a share. Both he and RBC Capital Markets analyst Fai Lee noted the company's strength in both its retail and wholesale businesses.
Mr. MacArthur raised his target all the way to C$118 a share from C$95. That assumes a multiple of 12 times his cash flow per share estimate for this year of C$9.80. Mr. Lee's target is C$115 and he noted that he plans to move his estimates for the company higher in the near-future.
In a note to clients, Mr. MacArthur wrote:
We continue to like [Agrium] over the long-term as the company provides good exposure to various fertilizer markets combined with a growing retail business.
But analysts figure that forecast is still too low, because it does not include any contribution from the recent acquisition of UAP Holdings Corp. UBS Securities analyst Brian MacArthur wrote that he expects earnings of C$3.20 a share. Both he and RBC Capital Markets analyst Fai Lee noted the company's strength in both its retail and wholesale businesses.
Mr. MacArthur raised his target all the way to C$118 a share from C$95. That assumes a multiple of 12 times his cash flow per share estimate for this year of C$9.80. Mr. Lee's target is C$115 and he noted that he plans to move his estimates for the company higher in the near-future.
In a note to clients, Mr. MacArthur wrote:
We continue to like [Agrium] over the long-term as the company provides good exposure to various fertilizer markets combined with a growing retail business.
Thursday, June 12, 2008
Cutting Intrepid Potash on Quick 25% Gain
I have to say this stock surpassed my expectations - after reviewing Interpid Potash's quarter, I had a general target of $3 EPS for 2008 (analysts at $2.18) x 20 PE ratio = $60 price target, when I added this stock a week ago Monday [Jun 2: Beginning Starter Position in Intrepid Potash]. I bought in the $48s and was hoping for $60 by sometime later in the year... that would have returned 25%. Well we got this in a week and a half, so I am booking profits and saying "wow". (I didn't get the $60, but sold around $59)
Can it keep going up? Certainly! Low share counts in recent IPOs allow for wild swings, but (a) I got my 6 month target in a week and a half and (b) I prefer the valuation in Mosaic so I'll just add more exposure there if need be, as my target for Mosaic in terms of price per share is much higher.
I have brought Intrepid Potash (IPI) back down to a very minor stake from 1.8% to 0.25%. We'll look to add shares on a pullback, and say thank you for for this nice quick gain.
Can it keep going up? Certainly! Low share counts in recent IPOs allow for wild swings, but (a) I got my 6 month target in a week and a half and (b) I prefer the valuation in Mosaic so I'll just add more exposure there if need be, as my target for Mosaic in terms of price per share is much higher.
I have brought Intrepid Potash (IPI) back down to a very minor stake from 1.8% to 0.25%. We'll look to add shares on a pullback, and say thank you for for this nice quick gain.
Agrium looks to seed to grow retail sales
WINNIPEG, Manitoba, June 12 (Reuters) - Agrium Inc (AGU.TO: Quote, Profile, Research, Stock Buzz) wants to grow its retail business by cutting into seed sales from traditional farmer-dealers in the U.S. corn belt, the largest U.S. retailer of fertilizer and chemicals said on Thursday.
The growing popularity of seed with "stacked" genetic traits will drive more farmers to buy from retail outlets, said officials from Agrium, which sells seed made by Monsanto Co (MON.N: Quote, Profile, Research, Stock Buzz), Syngenta AG (SYNN.VX: Quote, Profile, Research, Stock Buzz), and its own private brands.
"With the introduction of the new hybrids and all the trait options that a grower has to date, the decision-making process is much greater and it requires much more agronomic experience than it did just five years ago," said Jeff Tarsi, vice-president in charge of Agrium's retail strategy.
Agrium, one of the largest distributors for Monsanto seed varieties, has 1,500 agronomists on staff, Tarsi told an investor conference in Montreal.
The company wants to double its 15 percent share of the U.S. retail market, and plans to target large farmers who want a "one-stop shop" for fertilizer, chemicals and seed, as well as application services for the inputs.
Agrium currently has a six percent share of the U.S. retail seed market, Tarsi said. But he said that share will grow as seed developers bring out varieties with as many as nine genetically modified traits built in to resist insects and diseases and withstand herbicides.
Seed sales in the U.S Midwest have traditionally been dominated by farmer-dealers, with DuPont Co's (DD.N: Quote, Profile, Research, Stock Buzz) Pioneer Hi-Bred division the leading marketer through that network, said Tom Warner, an Agrium retail vice-president.
"Seed very vividly is on our radar screen," Warner said.
Agrium continues to look to expand its network through acquisitions, Tarsi said.
Calgary, Alberta-based Agrium, the world's third-largest nitrogen fertilizer producer, boosted its profit outlook beyond market expectations on Wednesday, noting half of the increase was due to brisk sales of fertilizer, seed and chemicals.
Its Toronto-listed stock was down 6 Canadian cents on Thursday to C$101.94 after reaching a record high of C$103.66 on Wednesday.
Retail margins were 90 percent higher for the first five months of 2008 than in the year-earlier period, said Warner, which more than made up for a late start to spring sales because of cold, wet weather in the U.S. Midwest.
The late spring, which helped boost U.S. spot corn futures to a record high of $7.25-1/2 per bushel on Thursday, could also mean farmers need to use more chemicals to ward off pests and diseases from weakened crops, Warner said.
Farmers are focused on doing what it takes to maximize yields because of skyrocketing prices that have them "giddy" with prospects for strong returns, he said.
"The farmers this year are swinging for the fences," he said. ($1=$1.03 Canadian) (Reporting by Roberta Rampton; Editing by Scott Anderson)
The growing popularity of seed with "stacked" genetic traits will drive more farmers to buy from retail outlets, said officials from Agrium, which sells seed made by Monsanto Co (MON.N: Quote, Profile, Research, Stock Buzz), Syngenta AG (SYNN.VX: Quote, Profile, Research, Stock Buzz), and its own private brands.
"With the introduction of the new hybrids and all the trait options that a grower has to date, the decision-making process is much greater and it requires much more agronomic experience than it did just five years ago," said Jeff Tarsi, vice-president in charge of Agrium's retail strategy.
Agrium, one of the largest distributors for Monsanto seed varieties, has 1,500 agronomists on staff, Tarsi told an investor conference in Montreal.
The company wants to double its 15 percent share of the U.S. retail market, and plans to target large farmers who want a "one-stop shop" for fertilizer, chemicals and seed, as well as application services for the inputs.
Agrium currently has a six percent share of the U.S. retail seed market, Tarsi said. But he said that share will grow as seed developers bring out varieties with as many as nine genetically modified traits built in to resist insects and diseases and withstand herbicides.
Seed sales in the U.S Midwest have traditionally been dominated by farmer-dealers, with DuPont Co's (DD.N: Quote, Profile, Research, Stock Buzz) Pioneer Hi-Bred division the leading marketer through that network, said Tom Warner, an Agrium retail vice-president.
"Seed very vividly is on our radar screen," Warner said.
Agrium continues to look to expand its network through acquisitions, Tarsi said.
Calgary, Alberta-based Agrium, the world's third-largest nitrogen fertilizer producer, boosted its profit outlook beyond market expectations on Wednesday, noting half of the increase was due to brisk sales of fertilizer, seed and chemicals.
Its Toronto-listed stock was down 6 Canadian cents on Thursday to C$101.94 after reaching a record high of C$103.66 on Wednesday.
Retail margins were 90 percent higher for the first five months of 2008 than in the year-earlier period, said Warner, which more than made up for a late start to spring sales because of cold, wet weather in the U.S. Midwest.
The late spring, which helped boost U.S. spot corn futures to a record high of $7.25-1/2 per bushel on Thursday, could also mean farmers need to use more chemicals to ward off pests and diseases from weakened crops, Warner said.
Farmers are focused on doing what it takes to maximize yields because of skyrocketing prices that have them "giddy" with prospects for strong returns, he said.
"The farmers this year are swinging for the fences," he said. ($1=$1.03 Canadian) (Reporting by Roberta Rampton; Editing by Scott Anderson)
Wednesday, June 11, 2008
Profit Growth A Key Element Of Winning Stocks
Earnings growth is the trait that separates true market winners from the rest of the pack. In fact, this factor is so vital that it makes up the first two letters of CAN SLIM.
Companies are in business to provide certain goods and services, but their real aim is making money for shareholders.
If a firm isn't delivering on the bottom line and growing its business, there's just no reason for share prices to move up.
After all, the price of a stock is a function of the company's future earnings potential.
With that said, what should you look for in profit growth? And how much growth should you look for ?
First, you want to find companies that grew earnings per share by a minimum of 25% in the latest quarter or past two quarters. Larger percentage increases are even better.
Just make sure you compare the current quarter's results with the same period a year earlier.
The 25% increase is just a floor. Often the best-performing companies will deliver quarterly profit growth well above that.
Research into the most successful stocks from 1952 to 2001 found that they averaged more than a 70% surge in the latest quarter before they began their major advances.
Case in point, fertilizer and animal feed producer Mosaic (NYSE:MOS - News) reported a 1,940% explosion in fiscal third-quarter income back in early April. The stock has gained about 23% since then.
Other companies such as Continental Resources (NYSE:CLR - News), CF Industries Holdings (NYSE:CF - News) and Arch Coal (NYSE:ACI - News) posted triple-digit earnings growth in their latest reported periods.
All of these names have been among the best-performing stocks after breaking out of bases.
Besides the percentage increase, look at the actual earnings figure. If the firm posted a 400% surge in per-share profit by earning a nickel, up from a penny a year ago, you might take that with a grain of salt.
Also, you should deduct one-time items from results to get a good apples-to-apples comparison.
If growth is good, acceleration is even better. That's when the rate of increase improves over consecutive quarters. For example, EPS gains will be 40% one quarter, 45% the next and then 50% in the following period. Accelerating growth tells you there's an important trend under way.
IBD's research found that in most of the the biggest stock market winners, earnings growth accelerated sometime in the 10 quarters before starting their major moves.
On the flip side, watch out for deceleration or slowing growth. Every company can have a bad quarter now and then. But beware if you see two straight quarters of a substantial slowdown. Generally, that means a two-thirds deterioration in EPS growth.
In addition to strong quarterly growth, you want to see evidence that the company has delivered increases on a longer-term basis.
Annual profit growth should be up at least 25% for at least three years in a row.
There are many resources in IBD and Investors.com that can help investors find companies with stellar profit growth.
Stocks In The News, the IBD 100, Your Weekly Review and other features are focused on companies with superior earnings growth.
IBD's EPS Rating calculates long-term and recent quarterly results and ranks those results for every stock on a scale of 1 to 99, with 99 being best.
The earnings-news capsules in IBD give each day's announced results, with key data on companies' earnings trends.
Companies are in business to provide certain goods and services, but their real aim is making money for shareholders.
If a firm isn't delivering on the bottom line and growing its business, there's just no reason for share prices to move up.
After all, the price of a stock is a function of the company's future earnings potential.
With that said, what should you look for in profit growth? And how much growth should you look for ?
First, you want to find companies that grew earnings per share by a minimum of 25% in the latest quarter or past two quarters. Larger percentage increases are even better.
Just make sure you compare the current quarter's results with the same period a year earlier.
The 25% increase is just a floor. Often the best-performing companies will deliver quarterly profit growth well above that.
Research into the most successful stocks from 1952 to 2001 found that they averaged more than a 70% surge in the latest quarter before they began their major advances.
Case in point, fertilizer and animal feed producer Mosaic (NYSE:MOS - News) reported a 1,940% explosion in fiscal third-quarter income back in early April. The stock has gained about 23% since then.
Other companies such as Continental Resources (NYSE:CLR - News), CF Industries Holdings (NYSE:CF - News) and Arch Coal (NYSE:ACI - News) posted triple-digit earnings growth in their latest reported periods.
All of these names have been among the best-performing stocks after breaking out of bases.
Besides the percentage increase, look at the actual earnings figure. If the firm posted a 400% surge in per-share profit by earning a nickel, up from a penny a year ago, you might take that with a grain of salt.
Also, you should deduct one-time items from results to get a good apples-to-apples comparison.
If growth is good, acceleration is even better. That's when the rate of increase improves over consecutive quarters. For example, EPS gains will be 40% one quarter, 45% the next and then 50% in the following period. Accelerating growth tells you there's an important trend under way.
IBD's research found that in most of the the biggest stock market winners, earnings growth accelerated sometime in the 10 quarters before starting their major moves.
On the flip side, watch out for deceleration or slowing growth. Every company can have a bad quarter now and then. But beware if you see two straight quarters of a substantial slowdown. Generally, that means a two-thirds deterioration in EPS growth.
In addition to strong quarterly growth, you want to see evidence that the company has delivered increases on a longer-term basis.
Annual profit growth should be up at least 25% for at least three years in a row.
There are many resources in IBD and Investors.com that can help investors find companies with stellar profit growth.
Stocks In The News, the IBD 100, Your Weekly Review and other features are focused on companies with superior earnings growth.
IBD's EPS Rating calculates long-term and recent quarterly results and ranks those results for every stock on a scale of 1 to 99, with 99 being best.
The earnings-news capsules in IBD give each day's announced results, with key data on companies' earnings trends.
Outlooks Lift Fertilizer Makers
Fertilizer firms rose to new highs amid upbeat forecasts. Agrium (NYSE:AGU - News) hiked its Q2 EPS guidance to $2.80-$3 from $1.92-$2.22. Wall St. expected $2.50. Potash Corp. (NYSE:POT - News) said it's poised for significant growth in the next 5 years, adding that fertilizer prices are nowhere near their peak.
Agrium shares rose 9% and Potash 1%. Intrepid Potash (NYSE:IPI - News), which backed its '08 output target, climbed 5%.
Agrium shares rose 9% and Potash 1%. Intrepid Potash (NYSE:IPI - News), which backed its '08 output target, climbed 5%.
Target $250 for Potash Corp
Potash Corp. (NYSE: POT - News) is the world's leading producer of potash and the world's largest fertilizer producer. The company has leverage to higher fertilizer application rates, higher crop plantings, increasing demand for biofuels and rising crop prices. The company is located in low-cost areas and financials are solid. Hence, we rate the stock a Buy with a target price of $250.
Moreover, the company has lower-cost nitrogen operations in Trinidad due to the long-term, lower-cost gas contracts with Natural Gas Company of Trinidad and Tobago Limited as well as proximity to the U.S. market. In response to the rising prices of potash products, the company has engaged in expansion and development of projects that will raise annual operational capacity to capture a significant share of the growth in global demand.
Global potash demand is expected to grow on average by more than 2 million tons annually. As a response to this, POT announced projects that will raise annual operational capacity to 15.7 million tons by the end of 2012.
Currently, the stock is trading at 20.1x our 2008 estimate of $11.03. Our target price of $250 is 22.7x our 2008 estimate.
Moreover, the company has lower-cost nitrogen operations in Trinidad due to the long-term, lower-cost gas contracts with Natural Gas Company of Trinidad and Tobago Limited as well as proximity to the U.S. market. In response to the rising prices of potash products, the company has engaged in expansion and development of projects that will raise annual operational capacity to capture a significant share of the growth in global demand.
Global potash demand is expected to grow on average by more than 2 million tons annually. As a response to this, POT announced projects that will raise annual operational capacity to 15.7 million tons by the end of 2012.
Currently, the stock is trading at 20.1x our 2008 estimate of $11.03. Our target price of $250 is 22.7x our 2008 estimate.
Fertilizing Agrium Shares
Demand for agricultural products has put a shine into the shares of Agrium Inc. this morning, as the stock has gained nearly 8% in premarket action after the company raised its second-quarter earnings guidance.
The Canada-based fertilizer company said strong results from its retail and wholesale operations amid high crop prices will push earnings to a range of $2.80 to $3 a share, up from the previous forecast for $1.92 to $2.22 a share. Chief Executive Mike Wilson said the fertilizer company foresees “an extended demand-driven cycle.” The improved guidance comes amid rising food prices and heavy demand for fertilizer. Shares of the stock have gained nearly 28% year-to-date
The Canada-based fertilizer company said strong results from its retail and wholesale operations amid high crop prices will push earnings to a range of $2.80 to $3 a share, up from the previous forecast for $1.92 to $2.22 a share. Chief Executive Mike Wilson said the fertilizer company foresees “an extended demand-driven cycle.” The improved guidance comes amid rising food prices and heavy demand for fertilizer. Shares of the stock have gained nearly 28% year-to-date
Agrium hits all-time high after raising 2Q outlook
Agrium hits all-time high after raising 2nd-quarter outlook on retail, wholesale performance
NEW YORK (AP) -- Shares of Agrium Inc. rose to an all-time high on Wednesday after it raised its second-quarter outlook.
Before the opening bell, the Canadian fertilizer company raised its second-quarter outlook to between $2.80 per share and $3 per share, citing strong retail and wholesale performance.
The company previously guided for between $1.92 and $2.22 per share for the quarter. Analysts polled by Thomson Financial expect a profit of $2.50 per share.
Shares advanced $7.97, or 8.7 percent, to close at $100.13 after reaching $101.97 in intraday trading.
In a note to investors, Goldman Sachs analyst Edlain Rodriguez said Agrium stands to benefit from higher prices of commodity crops as farmers buy up fertilizer to maximize yield.
In addition, the fertilizer market remains tight as harsh spring weather in the Midwest affected planting there, he said.
"We firmly believe that (agriculture) fundamentals will remain solid in the medium term and Agrium will continue to benefit as it further expands both its U.S. and global base," Rodriguez said.
He reiterated his "Neutral" rating on the company and said his estimates are under review.
Shares of Agrium have nearly tripled from a 52-week low of $34.62 in August.
NEW YORK (AP) -- Shares of Agrium Inc. rose to an all-time high on Wednesday after it raised its second-quarter outlook.
Before the opening bell, the Canadian fertilizer company raised its second-quarter outlook to between $2.80 per share and $3 per share, citing strong retail and wholesale performance.
The company previously guided for between $1.92 and $2.22 per share for the quarter. Analysts polled by Thomson Financial expect a profit of $2.50 per share.
Shares advanced $7.97, or 8.7 percent, to close at $100.13 after reaching $101.97 in intraday trading.
In a note to investors, Goldman Sachs analyst Edlain Rodriguez said Agrium stands to benefit from higher prices of commodity crops as farmers buy up fertilizer to maximize yield.
In addition, the fertilizer market remains tight as harsh spring weather in the Midwest affected planting there, he said.
"We firmly believe that (agriculture) fundamentals will remain solid in the medium term and Agrium will continue to benefit as it further expands both its U.S. and global base," Rodriguez said.
He reiterated his "Neutral" rating on the company and said his estimates are under review.
Shares of Agrium have nearly tripled from a 52-week low of $34.62 in August.
Everything's Coming Up Agrium
Agricultural product producer Agrium knows it is a good time to be in the fertilizer business.
Shares of Agrium (nyse: AGU - news - people ) soared to record heights Wednesday after the Calgary, Canada-based company boosted its second-quarter profit outlook, on the back of rapidly increasing demand for fertilizer and a healthy farm retail sector.
Agrium's stock peaked at a record $101.97 early Wednesday, and rested up $7.90, or 8.6%, to $100.06 in early afternoon trading in New York.
The smallest of Canada's three potash producers said it expects to earn between $2.80 and $3.00 per share in the second quarter, up from the previous outlook of $1.92 to $2.22, a result of "very strong results" from its retail and wholesale operations, with half of the increase coming from retail.
Excellent results are "particularly impressive given that the North American spring application season has been hampered by excessively cold and we weather this year," said Agrium Chief Executive, Michael M. Wilson. "Continued strong global crop prices have created unprecedented demand for crop inputs and we foresee an extended demand-driven cycle."
The fertilizer industry has been on a high as major companies across the sector have reported first-quarter profits that more than doubled--and occasionally nearly tripled--in the past year. Farmers, eager to boost crop yields in order to feed growing global demand for crops, are relying on nutrients to turn impressive harvests. (See Bountiful Times For Fertilizer Sector)
In the first quarter, higher realized nutrient prices helped push Agrium to a profit of $195.0 million, or $1.23 a share, from a loss of $11.0 million, or 8 cents a share in 2007's first-quarter. Sales rose 34.8% to $1.2 billion from $861.0 million in the previous year. Analysts forecasted earnings of 55 cents a share and sales of $1.0 billion. (See Agrium's Fertilizer Hit Paydirt)
"It's just evidence of how strong the ag cycle is," Chief Financial Officer Bruce Waterman said.
The improved outlook beat market expectations. Analysts polled by Thomson Financial had expected Agrium to earn $2.50 per share
Shares of Agrium (nyse: AGU - news - people ) soared to record heights Wednesday after the Calgary, Canada-based company boosted its second-quarter profit outlook, on the back of rapidly increasing demand for fertilizer and a healthy farm retail sector.
Agrium's stock peaked at a record $101.97 early Wednesday, and rested up $7.90, or 8.6%, to $100.06 in early afternoon trading in New York.
The smallest of Canada's three potash producers said it expects to earn between $2.80 and $3.00 per share in the second quarter, up from the previous outlook of $1.92 to $2.22, a result of "very strong results" from its retail and wholesale operations, with half of the increase coming from retail.
Excellent results are "particularly impressive given that the North American spring application season has been hampered by excessively cold and we weather this year," said Agrium Chief Executive, Michael M. Wilson. "Continued strong global crop prices have created unprecedented demand for crop inputs and we foresee an extended demand-driven cycle."
The fertilizer industry has been on a high as major companies across the sector have reported first-quarter profits that more than doubled--and occasionally nearly tripled--in the past year. Farmers, eager to boost crop yields in order to feed growing global demand for crops, are relying on nutrients to turn impressive harvests. (See Bountiful Times For Fertilizer Sector)
In the first quarter, higher realized nutrient prices helped push Agrium to a profit of $195.0 million, or $1.23 a share, from a loss of $11.0 million, or 8 cents a share in 2007's first-quarter. Sales rose 34.8% to $1.2 billion from $861.0 million in the previous year. Analysts forecasted earnings of 55 cents a share and sales of $1.0 billion. (See Agrium's Fertilizer Hit Paydirt)
"It's just evidence of how strong the ag cycle is," Chief Financial Officer Bruce Waterman said.
The improved outlook beat market expectations. Analysts polled by Thomson Financial had expected Agrium to earn $2.50 per share
Agrium Celebrates Century
AGRIUM LIFTS OUTLOOK DESPITE U.S. RAINS
Congratulations to Agrium (AGU) for scaling the heights to the century mark. The crop-nutrients maker has climbed to a record price over $100 a share in pre-market trading, thanks to a 10% bulge in its stock price. The move came after the company said that, despite some challenging conditions in North America, demand for its products has remained robust.
The U.S. planting season has been disrupted by unusually wet and cold weather this spring. Industry reports have said that as many as 4 million of the 86 million acres of farmland expected to have been sown with corn seed haven’t been planted. Farmers faced a choice of leaving the acres fallow, or resorting to other crops with later-season planting cycles. Nevertheless, Agrium said that rising prices for agricultural products have increased demand for its fertilizers.
It forecast that second-quarter profits will come in ahead of its - and analysts’ - estimates: the company projected earnings of $2.80 to $3 a share, as much as 50% ahead of its earlier forecasts. Analysts had been looking for earnings of $2.50 a share.
Congratulations to Agrium (AGU) for scaling the heights to the century mark. The crop-nutrients maker has climbed to a record price over $100 a share in pre-market trading, thanks to a 10% bulge in its stock price. The move came after the company said that, despite some challenging conditions in North America, demand for its products has remained robust.
The U.S. planting season has been disrupted by unusually wet and cold weather this spring. Industry reports have said that as many as 4 million of the 86 million acres of farmland expected to have been sown with corn seed haven’t been planted. Farmers faced a choice of leaving the acres fallow, or resorting to other crops with later-season planting cycles. Nevertheless, Agrium said that rising prices for agricultural products have increased demand for its fertilizers.
It forecast that second-quarter profits will come in ahead of its - and analysts’ - estimates: the company projected earnings of $2.80 to $3 a share, as much as 50% ahead of its earlier forecasts. Analysts had been looking for earnings of $2.50 a share.
Cramer's Lightning Round (6/10/08)
Monsanto (MON): “The stock has had a phenomenal run... truly phenomenal. I am concerned that you'll be coming in at a level that I think is a little too high. Why not wait? If oil goes under $130…you'll be able to buy MON in the $120s.”
Tuesday, June 10, 2008
The Mosaic Co. Added to Goldman's Conviction Buy List
I’d like to congratulate Goldman Sachs for its deft and timely upgrade of Mosaic (MOS) to its “Conviction Buy List” on Monday. With Bubble 3.0 in full swing, and Mosaic up a mere 1,000% in two years, such insights of unknown companies in unknown industries are highly appreciated by a market where manic behavior is evident on only some trading days.
Mosiac trades at a mere 47x trailing earnings, 11x book value, 8x sales and 34x cash flow. That’s a bargain compared to PotashCorp of Saskatchewan (POT), which is trading at 52x trailing earnings, 11x book, 12x sales and 32x cash flow. Heck, Mosaic and Potash are trading at only half what Cisco (CSCO) traded during Bubble 1.0!
Some doom-and-gloom types might point out to you that over the past couple hundred years, such manic behavior and silly valuations in commodities and commodity stocks have always lead to tremendous collapses. Don’t listen to them, because it’s different this time.
Mosiac trades at a mere 47x trailing earnings, 11x book value, 8x sales and 34x cash flow. That’s a bargain compared to PotashCorp of Saskatchewan (POT), which is trading at 52x trailing earnings, 11x book, 12x sales and 32x cash flow. Heck, Mosaic and Potash are trading at only half what Cisco (CSCO) traded during Bubble 1.0!
Some doom-and-gloom types might point out to you that over the past couple hundred years, such manic behavior and silly valuations in commodities and commodity stocks have always lead to tremendous collapses. Don’t listen to them, because it’s different this time.
Agriculture Stocks: Profit From Modernization
David Riedel has been thinking about the agricultural challenges facing the world, and he's come up with some ways for investors to harvest profits from the planting and growing of crops.
"They're going to have to apply modern methods and machinery to the farmland around the world," the president and founder of Riedel Research told CNBC. "They're going to need to aggregate farmland into larger plots, so they can use machinery and fertilizers...to raise those yields."
Recommendations:
So how does this all play into a portfolio?
"We're finding Brazilian aggregators...we're finding Russian aggregators like...Black Earth Farming BLACK EARTH FARMING LTDBLERF
but for the U.S. investors who wants to find something closer to home, I would definitely point people towards Deere Deere & he said. "They're definitely a company that's going to benefit from the global demand for their high-tech agricultural machinery, as people ty to find a way to raise their yield."
Fertilizer plays can be tricky, he says.
"I think potash is pretty much played out...I don't think we've got another opportunity for potash prices to triple like they did this year," he said.
Still, he's got a potash play.
"Uralkali Uralkaliy it's a Russian company, very huge resources of potash in Russia, and Uralkali is very well positioned to benefit from the global demand for potash fertilizer," he said.
"They're going to have to apply modern methods and machinery to the farmland around the world," the president and founder of Riedel Research told CNBC. "They're going to need to aggregate farmland into larger plots, so they can use machinery and fertilizers...to raise those yields."
Recommendations:
So how does this all play into a portfolio?
"We're finding Brazilian aggregators...we're finding Russian aggregators like...Black Earth Farming BLACK EARTH FARMING LTDBLERF
but for the U.S. investors who wants to find something closer to home, I would definitely point people towards Deere Deere & he said. "They're definitely a company that's going to benefit from the global demand for their high-tech agricultural machinery, as people ty to find a way to raise their yield."
Fertilizer plays can be tricky, he says.
"I think potash is pretty much played out...I don't think we've got another opportunity for potash prices to triple like they did this year," he said.
Still, he's got a potash play.
"Uralkali Uralkaliy it's a Russian company, very huge resources of potash in Russia, and Uralkali is very well positioned to benefit from the global demand for potash fertilizer," he said.
Dow Chemical's Liveris Interview: Part III- Agriculture
In part three we discuss Dow Ag and the agricultural sector in general including DuPont (DD) and Monsanto (MON).
Todd:
Roughly a third of earnings in the most recent quarter were Dow Ag. After you sell the commodity business, we are looking well in excess of that. I have not been able to find what percent of future earnings you expect them to be and what type of growth and how far out, as right now you are at about 20-25% annual EPS growth at Dow Ag. Going out 2009-2010 and beyond, to me 20% -25% EPS growth there seems sustainable if not surpassable. Accurate or not?
Andrew:
I think you are more accurate than not, remember the current % of Dow earnings is because AG is front loaded. It tends to be a first half year event for all of us because we are in the northern hemisphere and that's whether its Dow (DOW), DuPont (DD) or Monsanto (MON). The whole year happens in the first six months. We have some southern hemisphere exposure, notably Brazil and Argentina and my country Australia, but most of it is titled towards the northern hemisphere as a % of total earnings. Those numbers are distorted at this moment, but if you take the whole year and you say in '07 Dow AG earned about 10% to 15% of Dow's earnings but their growth rate was like you said, 20 some odd percent for the last five years.
They achieved that through 2 mechanisms one of which will continue to be a big plus that will ultimate if not continue that 20% ramp up it will get very close. The first mechanism is we have been levering Dow's considerable operational efficiencies over to Dow's Agroscience. Even though it is a small co. $3 to $4 billion in revenue, it has the power of a $50 billion co. in terms of operational excellence in its manufacturing, plants and supply chain. In its governance and share services it operates with its access to big company infrastructure, that's number one.
That's helped a lot of the cost line. Number two, the most exciting part is its pipeline. I mean, four years ago we made a conscious decision we said,"look, we're never going to be a big seed co. because its too expensive, one of these days we might be able to find an answer on U.S. corn, but between now and then let's rev up the technology engine and frankly not just in bio and seeds and traits in germplasm, but also in crop chemicals." I don't care what people say, GMOs will not replace crop chemicals in totality because growers will always need variety in their toolbox, its about diversity of solution and biotech cannot answer everything.
So we said "let's put R & D in focus on the pipeline that we now have" in crop chemicals in particular things that are not just in corn, but outside of corn, in cotton, rapeoil and canola, in seed ,in soy beans and of course over range and pasture. The crop chemical R & D pipeline we have right now and what we have done in traits, and in particular our new traits that we have announced plus the SmartStax agreement with Monsanto, have put us in a tremendous position. By 2010 when SmartStax gets launched, when our new traits get launched and our crop protection pipeline comes through, the R & D engine will yield real margin expansion for Dow AG.
I happen to think that Dow Ag in many ways doesn't need to have big revenues because its margins at 16%, 18%, 20% bottom line margins is packing a big punch in terms of its ability to deliver margin despite its size. We're increasing the R & D spending there. Dow Ag has a quarter of the R & D spending as a company which is a phenomenal statement when considering the size of the company we are and out there in the future Todd, we might be able to find rationalization opportunity and I will say out there, we'll find another one. In the meantime keep making that growth story.
Todd:
That was actually the next question. Ag sector valuations are stratospheric just now.
Andrew:
Oh yeah, I mean look, what were seeing now of the whole food change now started by corn and ethanol, that whole thing. Having said that, we're seeing China, this whole point about China's surge and as the Chinese eat more protein, eat more animals, those animals have to be nutured on agriculture, agriculture comes from feed, feed comes from corn and you know, there you go.
The food price things is real because of China's assention and I do think that's going to get worse before it gets better and I think the world is going to have to address it. I do not know what the systems will be. I do think the poverty side of it is big. The agricultural sector and the commodity boom in agriculture is compelling valuations to stratospheres, I mean Monsanto is the great flag carrier there, they are doing great and it wasn't long ago they were on their knees.
Todd:
Roughly a third of earnings in the most recent quarter were Dow Ag. After you sell the commodity business, we are looking well in excess of that. I have not been able to find what percent of future earnings you expect them to be and what type of growth and how far out, as right now you are at about 20-25% annual EPS growth at Dow Ag. Going out 2009-2010 and beyond, to me 20% -25% EPS growth there seems sustainable if not surpassable. Accurate or not?
Andrew:
I think you are more accurate than not, remember the current % of Dow earnings is because AG is front loaded. It tends to be a first half year event for all of us because we are in the northern hemisphere and that's whether its Dow (DOW), DuPont (DD) or Monsanto (MON). The whole year happens in the first six months. We have some southern hemisphere exposure, notably Brazil and Argentina and my country Australia, but most of it is titled towards the northern hemisphere as a % of total earnings. Those numbers are distorted at this moment, but if you take the whole year and you say in '07 Dow AG earned about 10% to 15% of Dow's earnings but their growth rate was like you said, 20 some odd percent for the last five years.
They achieved that through 2 mechanisms one of which will continue to be a big plus that will ultimate if not continue that 20% ramp up it will get very close. The first mechanism is we have been levering Dow's considerable operational efficiencies over to Dow's Agroscience. Even though it is a small co. $3 to $4 billion in revenue, it has the power of a $50 billion co. in terms of operational excellence in its manufacturing, plants and supply chain. In its governance and share services it operates with its access to big company infrastructure, that's number one.
That's helped a lot of the cost line. Number two, the most exciting part is its pipeline. I mean, four years ago we made a conscious decision we said,"look, we're never going to be a big seed co. because its too expensive, one of these days we might be able to find an answer on U.S. corn, but between now and then let's rev up the technology engine and frankly not just in bio and seeds and traits in germplasm, but also in crop chemicals." I don't care what people say, GMOs will not replace crop chemicals in totality because growers will always need variety in their toolbox, its about diversity of solution and biotech cannot answer everything.
So we said "let's put R & D in focus on the pipeline that we now have" in crop chemicals in particular things that are not just in corn, but outside of corn, in cotton, rapeoil and canola, in seed ,in soy beans and of course over range and pasture. The crop chemical R & D pipeline we have right now and what we have done in traits, and in particular our new traits that we have announced plus the SmartStax agreement with Monsanto, have put us in a tremendous position. By 2010 when SmartStax gets launched, when our new traits get launched and our crop protection pipeline comes through, the R & D engine will yield real margin expansion for Dow AG.
I happen to think that Dow Ag in many ways doesn't need to have big revenues because its margins at 16%, 18%, 20% bottom line margins is packing a big punch in terms of its ability to deliver margin despite its size. We're increasing the R & D spending there. Dow Ag has a quarter of the R & D spending as a company which is a phenomenal statement when considering the size of the company we are and out there in the future Todd, we might be able to find rationalization opportunity and I will say out there, we'll find another one. In the meantime keep making that growth story.
Todd:
That was actually the next question. Ag sector valuations are stratospheric just now.
Andrew:
Oh yeah, I mean look, what were seeing now of the whole food change now started by corn and ethanol, that whole thing. Having said that, we're seeing China, this whole point about China's surge and as the Chinese eat more protein, eat more animals, those animals have to be nutured on agriculture, agriculture comes from feed, feed comes from corn and you know, there you go.
The food price things is real because of China's assention and I do think that's going to get worse before it gets better and I think the world is going to have to address it. I do not know what the systems will be. I do think the poverty side of it is big. The agricultural sector and the commodity boom in agriculture is compelling valuations to stratospheres, I mean Monsanto is the great flag carrier there, they are doing great and it wasn't long ago they were on their knees.
The Mosaic Co. Added to Goldman's Conviction Buy List
I’d like to congratulate Goldman Sachs for its deft and timely upgrade of Mosaic (MOS) to its “Conviction Buy List” on Monday. With Bubble 3.0 in full swing, and Mosaic up a mere 1,000% in two years, such insights of unknown companies in unknown industries are highly appreciated by a market where manic behavior is evident on only some trading days.
Mosiac trades at a mere 47x trailing earnings, 11x book value, 8x sales and 34x cash flow. That’s a bargain compared to PotashCorp of Saskatchewan (POT), which is trading at 52x trailing earnings, 11x book, 12x sales and 32x cash flow. Heck, Mosaic and Potash are trading at only half what Cisco (CSCO) traded during Bubble 1.0!
Some doom-and-gloom types might point out to you that over the past couple hundred years, such manic behavior and silly valuations in commodities and commodity stocks have always lead to tremendous collapses. Don’t listen to them, because it’s different this time.
Mosiac trades at a mere 47x trailing earnings, 11x book value, 8x sales and 34x cash flow. That’s a bargain compared to PotashCorp of Saskatchewan (POT), which is trading at 52x trailing earnings, 11x book, 12x sales and 32x cash flow. Heck, Mosaic and Potash are trading at only half what Cisco (CSCO) traded during Bubble 1.0!
Some doom-and-gloom types might point out to you that over the past couple hundred years, such manic behavior and silly valuations in commodities and commodity stocks have always lead to tremendous collapses. Don’t listen to them, because it’s different this time.
Monday, June 9, 2008
Ag Plays Continue to Run
For a time it appeared as if the agricultural plays, which ran wild in 2007, were going to languish as investors snapped up other investments in 2008. Those stocks pulled back in mid-May, along with the rest of the market, but have put together another sharp rally in the last two weeks.
Potash Corp. of Saskatchewan was up by 4.2% Monday after gaining 51% in 2008, while rival Agrium Inc. tacked on 3.9% after a 28% gain in the first five-plus months of the year. Jeffrey Cooper, writing on Minyanville.com, says that Potash “and its entourage surely are reminiscient of hammer-time in the Internets” dating back to 1999. And yet, these stocks continue their surge.
Goldman Sachs analysts raised earnings estimates for two prominent names — Potash and Mosaic, saying they “continue to believe that exposure to companies significant potash exposure will lead to greater rewards for investors because of the superior industry structure of potash compared to the other nutrients.”
Seed giant Monsanto was also doing well, gaining 3.1%; the stock was up nearly 22% headed into today’s trade. Also gaining was Intrepid Potash, which rose 7%, and Mosaic Co., which rose 6.4%.
Potash Corp. of Saskatchewan was up by 4.2% Monday after gaining 51% in 2008, while rival Agrium Inc. tacked on 3.9% after a 28% gain in the first five-plus months of the year. Jeffrey Cooper, writing on Minyanville.com, says that Potash “and its entourage surely are reminiscient of hammer-time in the Internets” dating back to 1999. And yet, these stocks continue their surge.
Goldman Sachs analysts raised earnings estimates for two prominent names — Potash and Mosaic, saying they “continue to believe that exposure to companies significant potash exposure will lead to greater rewards for investors because of the superior industry structure of potash compared to the other nutrients.”
Seed giant Monsanto was also doing well, gaining 3.1%; the stock was up nearly 22% headed into today’s trade. Also gaining was Intrepid Potash, which rose 7%, and Mosaic Co., which rose 6.4%.
IBD's Top 10 - Monday
New iPhone Out; RIM Unfazed
1 As expected, Apple (NasdaqGS:AAPL - News) unveiled a high-speed version of its smart phone. The 3G iPhone, which will go on sale July 11, features GPS and costs less than the original, priced starting at $199. Apple also revealed a MobileMe online service for synchronizing applications that costs $99 a year. Apple shares fell 2%. BlackBerry maker Research In Motion (NasdaqGS:RIMM - News) wasn't fazed, rising 2%.
Lehman Raising $6B, Sees Loss
2 The investment bank plans to raise new capital to cover a Q2 loss of $2.8 bil, or $5.14 a share, its first as a public firm. Views were for a loss of 22 cents. Lehman Bros. (NYSE:LEH - News) expects net revenue to be a negative $700 mil, largely on trading losses. It said it sold about $130 bil of assets in Q2, with mortgage-related assets and leveraged loans down 15%-20%. Shares fell 9%.
Pending Home Sales Rebound
3 An index tracking contract signings for existing homes shot up 6.3% in April to a 6-month high from Oct.'s record low as buyers snapped up bargains in beaten-down markets, the Nat'l Association of Realtors said. The report suggests resale closings likely improved in May or this month. Some analysts see signs of a bottom, but prices have yet to stabilize.
Oil Eases On Dollar, Awaits Data
4 Crude backed off Fri.'s highs, ending down $4.19 to $134.35 a barrel as the dollar edged off record lows vs. the euro. Average gasoline prices topped $4 a gallon for the first time Sun. and moved to $4.02 on Mon. Saudi Arabia called for a meeting between oil producers and consumers, though analysts doubt that'll have much impact.
Indexes Mixed; Nasdaq Slides
5 The Nasdaq fell 0.6%, undercutting its May lows. Apple's 2% drop weighed on the composite, which trimmed losses late as Research In Motion rallied off its 50-day line. The NYSE composite was flat while the S&P 500 edged up 0.1% and the Dow gained 0.6% on strong McDonald's sales. Volume fell. The 10-year Treasury yield rose 8 basis points to 4.02%.
Iran Blames Iraq Woes On U.S.
6 Iran's supreme leader, Ayatollah Ali Khamenei, told visiting Iraqi PM Nouri al-Maliki that U.S. forces in his country pose the biggest obstacle to Iraq's future. Al-Maliki was in Tehran to foster stronger trading ties, even though Iran has long been accused of arming Iraqi militias. Tehran is hoping to undermine ongoing U.S.-Iraqi talks on a long-term security deal.
Obama, McCain Spar On Economy
7 Barack Obama said his GOP rival is an extension of President Bush and the "most fiscally irresponsible administration in history." Obama said he would keep Bush's income tax cuts for those making less than $200,000. John McCain's spokesman said Obama was a tax-and-spend liberal whose policies would destroy jobs. McCain will speak before a key business group on Tue.
High Court Limits Patent Rights
8 The Supreme Court unanimously ruled that firms give up the right to control how patented tech is used by the buyer once it is sold. The ruling vs. S. Korea's LG Electronics could affect patent holders like wireless tech giant Qualcomm (NasdaqGS:QCOM - News) and seed king Monsanto (NYSE:MON - News). Patent holders likely could still restrict future uses via license agreements.
Bush Arrives For Final EU Summit
9 The president arrived in Slovenia for his last U.S.-EU Summit at which he'll push for stronger penalties vs. Iran to discourage it from developing atomic weapons. Bush will also discuss with European leaders the world food crisis and Israeli-Palestinian peace talks. Bush will also visit Germany, Italy, France, England and N. Ireland.
Violent Crime Declined In U.S.
10 Violent crimes dipped 1.4% last year, reversing 2 years of increases, the FBI reported. Crime trends weren't uniform, however, with murders plunging 9.8% in big cities with more than 1 mil people while rising 3.7% in cities with 50,000-100,000. Property crimes fell 2.1%, the biggest drop in 4 years.
1 As expected, Apple (NasdaqGS:AAPL - News) unveiled a high-speed version of its smart phone. The 3G iPhone, which will go on sale July 11, features GPS and costs less than the original, priced starting at $199. Apple also revealed a MobileMe online service for synchronizing applications that costs $99 a year. Apple shares fell 2%. BlackBerry maker Research In Motion (NasdaqGS:RIMM - News) wasn't fazed, rising 2%.
Lehman Raising $6B, Sees Loss
2 The investment bank plans to raise new capital to cover a Q2 loss of $2.8 bil, or $5.14 a share, its first as a public firm. Views were for a loss of 22 cents. Lehman Bros. (NYSE:LEH - News) expects net revenue to be a negative $700 mil, largely on trading losses. It said it sold about $130 bil of assets in Q2, with mortgage-related assets and leveraged loans down 15%-20%. Shares fell 9%.
Pending Home Sales Rebound
3 An index tracking contract signings for existing homes shot up 6.3% in April to a 6-month high from Oct.'s record low as buyers snapped up bargains in beaten-down markets, the Nat'l Association of Realtors said. The report suggests resale closings likely improved in May or this month. Some analysts see signs of a bottom, but prices have yet to stabilize.
Oil Eases On Dollar, Awaits Data
4 Crude backed off Fri.'s highs, ending down $4.19 to $134.35 a barrel as the dollar edged off record lows vs. the euro. Average gasoline prices topped $4 a gallon for the first time Sun. and moved to $4.02 on Mon. Saudi Arabia called for a meeting between oil producers and consumers, though analysts doubt that'll have much impact.
Indexes Mixed; Nasdaq Slides
5 The Nasdaq fell 0.6%, undercutting its May lows. Apple's 2% drop weighed on the composite, which trimmed losses late as Research In Motion rallied off its 50-day line. The NYSE composite was flat while the S&P 500 edged up 0.1% and the Dow gained 0.6% on strong McDonald's sales. Volume fell. The 10-year Treasury yield rose 8 basis points to 4.02%.
Iran Blames Iraq Woes On U.S.
6 Iran's supreme leader, Ayatollah Ali Khamenei, told visiting Iraqi PM Nouri al-Maliki that U.S. forces in his country pose the biggest obstacle to Iraq's future. Al-Maliki was in Tehran to foster stronger trading ties, even though Iran has long been accused of arming Iraqi militias. Tehran is hoping to undermine ongoing U.S.-Iraqi talks on a long-term security deal.
Obama, McCain Spar On Economy
7 Barack Obama said his GOP rival is an extension of President Bush and the "most fiscally irresponsible administration in history." Obama said he would keep Bush's income tax cuts for those making less than $200,000. John McCain's spokesman said Obama was a tax-and-spend liberal whose policies would destroy jobs. McCain will speak before a key business group on Tue.
High Court Limits Patent Rights
8 The Supreme Court unanimously ruled that firms give up the right to control how patented tech is used by the buyer once it is sold. The ruling vs. S. Korea's LG Electronics could affect patent holders like wireless tech giant Qualcomm (NasdaqGS:QCOM - News) and seed king Monsanto (NYSE:MON - News). Patent holders likely could still restrict future uses via license agreements.
Bush Arrives For Final EU Summit
9 The president arrived in Slovenia for his last U.S.-EU Summit at which he'll push for stronger penalties vs. Iran to discourage it from developing atomic weapons. Bush will also discuss with European leaders the world food crisis and Israeli-Palestinian peace talks. Bush will also visit Germany, Italy, France, England and N. Ireland.
Violent Crime Declined In U.S.
10 Violent crimes dipped 1.4% last year, reversing 2 years of increases, the FBI reported. Crime trends weren't uniform, however, with murders plunging 9.8% in big cities with more than 1 mil people while rising 3.7% in cities with 50,000-100,000. Property crimes fell 2.1%, the biggest drop in 4 years.
Heavy Rains Hurting Corn and Soybean Yields, Raising Prices
Rainfall has been over 3 times the normal amount in the Midwest the last few weeks, with more rain on the way. The heavy rains are affecting corn and soybean yields (video source: Clip Syndicate, Bloomberg), with just 74% of corn emerged from the ground, and only 32% of soybeans emerged.
Farmers are now at a point of needing to make a decision of whether to take the Government subsidized crop insurance and keep the ground idle, or plant and take the risks of lower yields, which could be potentially as low as 75% of normal yield levels. As much as 500,000 to 3 million acres may become idle. Analysts are already cutting corn crop yields by 4 bushels per acre. As ethanol production continues to increase, expect corn prices to rise, with consumers feeling the effects at both the pump and in the grocery store.
Companies to watch that may be impacted include Archer Daniels Midland (ADM) and Bugne (BG). Others that are likely to continue to benefit from rising demand for food commodities include fertilizer companies such as Mosaic (MOS), Potash (POT), and Agrium (AGU), chemical and seed companies such as Dow Chemical (DOW) and Monsanto (MON), and agricultural machinery makers such as Deere (DE).
On the direct downside are the users of corn, especially the restaurants and food producers with lower margins and less pricing power, such as Darden (DRI) and Tyson Foods (TSN).
Farmers are now at a point of needing to make a decision of whether to take the Government subsidized crop insurance and keep the ground idle, or plant and take the risks of lower yields, which could be potentially as low as 75% of normal yield levels. As much as 500,000 to 3 million acres may become idle. Analysts are already cutting corn crop yields by 4 bushels per acre. As ethanol production continues to increase, expect corn prices to rise, with consumers feeling the effects at both the pump and in the grocery store.
Companies to watch that may be impacted include Archer Daniels Midland (ADM) and Bugne (BG). Others that are likely to continue to benefit from rising demand for food commodities include fertilizer companies such as Mosaic (MOS), Potash (POT), and Agrium (AGU), chemical and seed companies such as Dow Chemical (DOW) and Monsanto (MON), and agricultural machinery makers such as Deere (DE).
On the direct downside are the users of corn, especially the restaurants and food producers with lower margins and less pricing power, such as Darden (DRI) and Tyson Foods (TSN).
Friday, June 6, 2008
Can Monsanto Double Grain Yields?
Monsanto (MON) is a name I've had on the radar a long while, as part of the global agriculture boom. [Oct 9: Looking Ahead to Monsanto] It has always been deemed 'expensive' but frankly due to it's scarcity value (only one relative true peer in Syngenta (SYT)) it will probably trade at a premium for a long while. The trick for a stock like this is it must be bought during a serious market swoon (i.e. mid March) to get a price that can create comparable upside to some other ideas in the fund.
First let's quickly point out the company has come out with a reiteration last week of guidance to double gross profit by 2012
Monsanto says it still expects its gross profit to more than double by 2012 by increasing productivity and yields to farmers.
In 2007, the company's gross profit was $4.29 billion. If the company can double that number, its gross profit will reach about $8.5 billion by 2012. Gross profit is the difference between income and the expenses directly attributed to it.
Now on to some commentary by the company to double yields by 2030 (again we need breakthroughs left and right across agriculture and energy to compensate for a new batch of 2.5 billion humans set to join us by 2050)
Monsanto Co. Chief Executive Hugh Grant set a bold goal for the company on Wednesday, promising to develop by 2030 new strains of corn, soybeans and cotton that can yield twice as much grain and fiber per-acre while consuming just two-thirds the water.
A key part of realizing the goal is breeding crops that need less water to survive, he said. (for those readers who were not around in the fall - i.e. most of you - I had maintained then that in the future wars between countries will be fought over fresh water, not oil... err weapons of mass destruction - that will be the ultimate shortage; the one truly non negotiable factor in human life)
While grain yields have been relatively flat over the last decade, its possible they could double over the next 22 years, said Michael Aide, chair of the Southeast Missouri State University Department of Agriculture. Farmers in southeast Missouri, for example, can grow about 200 bushels of corn per acre, far more than double what they could grow during World War II, he said. Over the last 60 years, yield increases have come in big jumps when new technologies like artificial fertilizer were introduced.
Monsanto plans to increase its grain yields gradually, Grant said, as the company introduces new strains of crops. The company will use advanced breeding techniques to develop heartier, more fruitful crops. At the same time, it will use genetic engineering to give the plants the ability to withstand pests like corn worms.
Some commentators in this NYTimes story have their doubts
Much of what is in the commitment are things the company was doing anyway. But Monsanto’s chief executive, Hugh Grant, said in an interview Wednesday that the company wanted to make the goals public “so this isn’t just a bound report on some library shelf.”
Soybeans, corn and cotton that have been genetically engineered to provide herbicide tolerance, insect resistance or both are widely grown in the United States and several other countries. But they are largely shunned in Europe and some other areas because of concerns about potential environmental and health effects. (that has already begun to change due to economics - as with the environment once costs hit a certain price level, non economic considerations get thrown out the door)
James E. Specht, a soybean genetics expert at the University of Nebraska, said he doubted it could be done. “The hype-to-reality ratio of that one is essentially infinity,” Mr. Specht said. “Seeing an exponential change in the yield curve is unlikely.” Mr. Specht said that on irrigated farms in Nebraska, soybean yields have been increasing by about 0.6 bushels an acre every year. At that rate it would take 83 years for yields to double from the 50 bushels an acre recorded in 2000.
But Monsanto executives say that a new technique called marker-assisted selection could double the rate of gain made from breeding. That technique does not involve altering crops by putting in foreign genes. Rather it uses genetic tests to help choose which plants to use in conventional cross-breeding, vastly speeding up the process.
Moreover, the company is not talking about the United States alone. In some countries, output could be increased dramatically just by introducing modern hybrid corn, whether or not that corn is genetically engineered, Mr. Grant said.
Bill Freese, a science policy analyst at the Center for Food Safety, a Washington group critical of biotech crops, said some studies had shown that genetic engineering can actually reduce yields. He and other critics also say that the biotech crops developed so far have mainly been aimed at feeding livestock in wealthy countries, not improving the staple crops grown by small farmers in poor countries.
While Mr. Grant said that skeptics might say Monsanto was exploiting the food crisis to win acceptance for its technology, other people “will say it’s long overdue, and thank goodness the companies are stepping up.”
First let's quickly point out the company has come out with a reiteration last week of guidance to double gross profit by 2012
Monsanto says it still expects its gross profit to more than double by 2012 by increasing productivity and yields to farmers.
In 2007, the company's gross profit was $4.29 billion. If the company can double that number, its gross profit will reach about $8.5 billion by 2012. Gross profit is the difference between income and the expenses directly attributed to it.
Now on to some commentary by the company to double yields by 2030 (again we need breakthroughs left and right across agriculture and energy to compensate for a new batch of 2.5 billion humans set to join us by 2050)
Monsanto Co. Chief Executive Hugh Grant set a bold goal for the company on Wednesday, promising to develop by 2030 new strains of corn, soybeans and cotton that can yield twice as much grain and fiber per-acre while consuming just two-thirds the water.
A key part of realizing the goal is breeding crops that need less water to survive, he said. (for those readers who were not around in the fall - i.e. most of you - I had maintained then that in the future wars between countries will be fought over fresh water, not oil... err weapons of mass destruction - that will be the ultimate shortage; the one truly non negotiable factor in human life)
While grain yields have been relatively flat over the last decade, its possible they could double over the next 22 years, said Michael Aide, chair of the Southeast Missouri State University Department of Agriculture. Farmers in southeast Missouri, for example, can grow about 200 bushels of corn per acre, far more than double what they could grow during World War II, he said. Over the last 60 years, yield increases have come in big jumps when new technologies like artificial fertilizer were introduced.
Monsanto plans to increase its grain yields gradually, Grant said, as the company introduces new strains of crops. The company will use advanced breeding techniques to develop heartier, more fruitful crops. At the same time, it will use genetic engineering to give the plants the ability to withstand pests like corn worms.
Some commentators in this NYTimes story have their doubts
Much of what is in the commitment are things the company was doing anyway. But Monsanto’s chief executive, Hugh Grant, said in an interview Wednesday that the company wanted to make the goals public “so this isn’t just a bound report on some library shelf.”
Soybeans, corn and cotton that have been genetically engineered to provide herbicide tolerance, insect resistance or both are widely grown in the United States and several other countries. But they are largely shunned in Europe and some other areas because of concerns about potential environmental and health effects. (that has already begun to change due to economics - as with the environment once costs hit a certain price level, non economic considerations get thrown out the door)
James E. Specht, a soybean genetics expert at the University of Nebraska, said he doubted it could be done. “The hype-to-reality ratio of that one is essentially infinity,” Mr. Specht said. “Seeing an exponential change in the yield curve is unlikely.” Mr. Specht said that on irrigated farms in Nebraska, soybean yields have been increasing by about 0.6 bushels an acre every year. At that rate it would take 83 years for yields to double from the 50 bushels an acre recorded in 2000.
But Monsanto executives say that a new technique called marker-assisted selection could double the rate of gain made from breeding. That technique does not involve altering crops by putting in foreign genes. Rather it uses genetic tests to help choose which plants to use in conventional cross-breeding, vastly speeding up the process.
Moreover, the company is not talking about the United States alone. In some countries, output could be increased dramatically just by introducing modern hybrid corn, whether or not that corn is genetically engineered, Mr. Grant said.
Bill Freese, a science policy analyst at the Center for Food Safety, a Washington group critical of biotech crops, said some studies had shown that genetic engineering can actually reduce yields. He and other critics also say that the biotech crops developed so far have mainly been aimed at feeding livestock in wealthy countries, not improving the staple crops grown by small farmers in poor countries.
While Mr. Grant said that skeptics might say Monsanto was exploiting the food crisis to win acceptance for its technology, other people “will say it’s long overdue, and thank goodness the companies are stepping up.”
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