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Mixed Signals For Fertilizer Organizations

August 30, 2012

ETF

Mixed Signals For Fertilizer Businesses

Report by Charles Rotblut

Important Points:

* Urea charges fell by a lot more than $ 70 in late September * A strike is assisting to support potash rates * Some analysts are raising 2009 earnings forecasts * Highlighted stocks contain AGU, CF, MOS, POT and TRA

Fears that fertilizer organizations could be losing pricing energy sent their shares tumbling late final week.

The main lead to was a sharp drop in urea rates. A report published final Thursday on Farm Futures revealed a $ 70 decline in Black Sea prices above the previous 2 weeks. (Ammonia costs were weaker as nicely.)

Urea is a essential ingredient utilized in fertilizer. Traders are concerned that the recent drop is an early signal of slipping demand for fertilizer. Any weakness would get in touch with into question fourth-quarter and 2009 revenue forecasts for Agrium (AGU), CF Industries (CF), Mosaic (MOS), Potash of Saskatchewan (POT) and Terra Industries (TRA).It is possible that some farmers are picking to function by way of existing supplies, instead than pay elevated rates. Definitely, the ongoing credit crunch is affecting investing. Nevertheless, there is a variation amongst purchases being delayed and a trend of diminished demand.

Maintain in thoughts that each global economic growth and elevated use of ethanol played material roles in greater aggregate need for agricultural items. Individuals in building nations continue to eat better, as their incomes enable them to enjoy meals that are past a subsistence diet, and ethanol is nevertheless becoming looked at as an choice fuel resource.

Potash Strike

A discernable trend in potash costs would offer more clarity. Even so, there is an ongoing strike at three of POT’s mines. The mines account for roughly 30% of the company’s potash manufacturing.

The strike is delivering some artificial help to potash prices.

Including to the uncertainty is the truth that supplies of potash are abnormally low.

Revenue Forecasts

Nearly all of the covering brokerage analysts are maintaining their 2008 revenue forecasts for fertilizer companies unchanged heading into third-quarter earnings season. (1 analyst did lower his forecast on AGU last week, but the consensus earnings estimate of $ 9.43 is nevertheless 7 cents above the regular forecast of a month ago.)

Looking ahead to 2009, a couple of brokerage analysts have raised their profit projections in excess of the past couple of weeks. There is at the moment no expectation that demand destruction will take place following yr.

Brace for Even more Volatility

However almost all of the fertilizer stocks carry on to trade at discounts relative to their projected earnings growth, they are quite volatile. Investors should expect far more big price swings in the future.

Based on the resolution to the Potash of Saskatchewan strike, other work stoppages could happen. On the other hand, if the business holds its stance firm, the current strike could continue for an extended period of time. Both occurrence would cause sustained supply disruptions.

On the demand side, farmers are probably to continue maximizing crop yields. This said, farming communities are not immune from the ongoing credit score crunch. In addition, a international financial slump could adversely impact emerging nations, this kind of as China, which would result in some drop in need.

Nevertheless, provided the food shortages that occurred earlier this year, it would seem a significant worldwide recession would have to happen for demand to drop considerably.

AGU, POT and TRA are Zacks #one Rank (“robust acquire”) stocks. CF is a Zacks #2 Rank (“buy”) stock. MOS is a Zacks #3 Rank (“hold”) stock. All 5 are classified in Fertilizers.

Related ETFs

No ETF focuses solely on the fertilizer stocks.

Market Vectors Agribusiness (MOO) might be the greatest alternative, given that it holds shares in businesses this kind of as MOS and POT. The fund, even so, also has exposure to farm gear makers like Deere (DE) and CNH Global (CNH).

About the Writer

Charles Rotblut is the Vice President of Web Content for Zacks Investment Study and the Senior Market place Analyst for Zacks.com. He oversees the editorial employees, manages the industry-beating Concentrate Checklist, Timely Buys and Top ten portfolios, and plays an instrumental part in the improvement of new items. For a lot more information, visit http://www.zacks.com

Use and distribution of this write-up is subject to our Publisher Suggestions
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Charles Rotblut is the Vice President of Internet Content material for Zacks Investment Investigation and the Senior Market place Analyst for Zacks.com. He oversees the editorial workers, manages the marketplace-beating Focus List, Timely Buys and Prime 10 portfolios, and plays an instrumental function in the improvement of new products. For a lot more information, check out http://www.zacks.com

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