Agriculture

The shares of fertilizer producers continue to be underpinned by the weak global macroeconomic picture, despite the bullish projections on the near and long-term outlook for the sector.

By Leia Toovey- Exclusive to Potash Investing News

The shares of fertilizer producers continue to be underpinned by the weak global macroeconomic picture, despite bullish projections on the near and long-term outlook for the sector.

While low grain inventories and high prices are providing plenty of incentive for farmer’s to apply fertilizers, shares of potash and phosphate producers are still well-off their 52-week highs.

With potash and phosphate producers raking in record-earnings, and prices for the nutrients climbing across the global market place, many investors are stumped, wondering when/if will share prices start to reflect the sector’s bullish trajectory. In Potash Corporation of Saskatchewan’s earnings release, CEO Bill Doyle commented that his company was “not immune” to the bleak global macroeconomic picture, however, the potash sector as a whole was still supported by strong fundamentals.

Despite the great fundamentals supporting the phosphates and potash, the fertilizer sector will continue to be impacted by the debt contagion in the Eurozone, and the questionable demand outlook in Asia and America. Therefore, in the near-term analysts don’t have a consistent view over what the future holds for fertilizer stocks, as evident by variances in the outlook ratings investment houses have granted  potash and phosphate producers.

Price outlooks

On Tuesday, equities research analysts at Goldman Sachs (NYSE:GS) raised their price target on shares of Potash Corp (NYSEPOT) to $61.00 in a research issued note to investors. They currently have a “buy” rating on the company’s shares. Separately, analysts at Citigroup (NYSE:C) reiterated a “buy” rating on shares of Potash Corp in a research note to investors on Wednesday, November 2. Analysts at RBC Capital (NYSE:RY) initiated coverage on shares of Potash Corp on Thursday, October 27. They set a “sector perform” rating and a $55.00 price target on the stock. Potash Corp is currently trading around $45.00 on the NYSE; it has a 52-week high of $63.97 and a 52-week low of $39.54

Intrepid Potash (NYSE:IPI) was downgraded by equities research analysts at Zacks Investment Research from an “outperform” rating to a “neutral” rating in a research note issued to investors on Saturday. On Tuesday, equities research analysts at UBS AG (NYSE:UBS) initiated coverage on shares of Intrepid Potash. They set a “neutral” rating and a $28.00 price target on the stock. Intrepid Potash’s current share price is 24.80; it has a 52-week high of $40.22, and a 52-week low of $22.47.

Bullish data

Even as share values stagnate, bullish data over the future of the sector continues to stream in. This week ,Ohio State University Extension agricultural economist Barry Ward says current budget projections for his state show a likely 10 percent rise in variable costs for next year’s crop, with potash costs representing a much higher percentage. “Potash prices will likely trend higher into 2012 as high crop prices will into continued strong demand while the two major potash consortiums will meter out supply to keep prices stable,” claimed Ward. Ward added that higher potash costs are not likely to deter farmers from purchases. “Input costs have increased from last year but high futures prices for 2012 crops allow producers to plan for positive margins for next year.”

In India, a government panel is working to assess, and remediate the phosphate supply situation that is crimping agricultural output. In the recent Rabi planting season, farmers complained that they did not receive phosphate in a timely fashion, due to shortages of the essential crop nutrient. To maximize yields, the proper timing of phosphate application is crucial. The government panel’s research showed that India’s demand for phosphates will grow in the coming years; however, the panel has yet to come up with a solution on how to prevent future supply shortages. India’s apparent consumption of apatite and rock phosphate is estimated at 8.59 million tonnes for the 2011-12 period, and will grow by approximately 9 percent a year to reach 13.22 million tonnes by 2016-17. According to Reuters, India’s demand for potash in 2011/2012 will be 5 percent more compared to 2010/2011.

 

Securities Disclosure: I, Leia Toovey, hold equity interests in Potash Corporation of Saskatchewan and Goldman Sachs.

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