July 24, 2012
US fertiliser consumption unlikely to fall on Midwest drought
Following the current drought in the Midwest, US fertiliser consumption is unlikely to decline, Citi Investment Research said.
Citi also raised its target price on shares of fellow fertiliser producers CF Industries and Agrium Inc.
"We think investors are over-estimating the potential for demand destruction in North America due to the on-going Midwest drought," analyst P.J. Juvekar wrote in a note.
Severe heat blanketed much of the US Midwest last week, exacerbating the region''s worst drought in more than 50 years and devastating corn, soy and other vital crops. The drought is the worst since 1956, the National Oceanic and Atmospheric Administration said in a report posted on its website.
Mosaic last week said the drought would not likely dent fertiliser sales, as the drop in agricultural production this year will force farmers to plant more next year.
Analyst Juvekar said that fertiliserdemand on average went up following the two recent drought years in 1983 and 1988.
"Total North American phosphate consumption grew about 8% and potash about 2% on average in the year following these droughts," Juvekar said.
Juvekar is rated four stars for the accuracy of his earnings estimates on Mosaic, according to Thomson Reuters StarMine. The company could also launch a major share buyback programme once the restrictions from the Cargill split-off are lifted in 2013, Juvekar said. US agribusiness and trading firm Cargill sold its stake in Mosaic in 2011.
Mosaic shares, which have risen about 1% since it reported fourth-quarter results last week, were down slightly at US$57.06 on Monday (July 23) morning on the New York Stock Exchange.
Citigroup raised its target price on the stock of CF Industries to US$209 from US$193. It raised its target price on Agrium Inc to US$100 from US$95.