The fertilizer market has ground to a halt over the past couple of months as economic woes put a clamp on global food demand, but according to a co-authored report from UBS, investors in the sector can rest assured the downturn will be minor.
Analysts at UBS wrote in a research note to clients:
Clearly the world needs to eat and while the global economic crisis will impact food consumption growth rates we expect both meat and grain consumption to be flat to negative 1% year on year versus 2008.
They added that meat consumption during past recessions has grown at 0 to 1% during past recessions.
The analysts said potash volumes are likely to be down 5% year on year with consumption in urea and phosphate expected to grow respectively by 1.5% and 3%.
Potash prices, meanwhile, are expected to stay strong at $700 per tonne, while urea and phosphate prices remain under pressure due to supply/demand weakness. The analysts forecast urea at $250 to $300 per tonne and phosphate at $250 per tonne.
As such, the investment firm prefers potash producers over urea producers, naming Potash Corp. of Saskatchewan Inc. (POT) and Agrium Inc. (AGU) among its favourite stocks..seeking alpha
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