May 19, 2012
Global fertiliser shares slide amid foreseen recovery
Despite ideas among some brokers that a fall in the industry, which has cost CF Industries stock some 15% this May, shares in fertiliser groups worldwide prolonged their slide.
While shares in some potash groups, such as Canada''s Agrium and Germany''s K+S, staged a small recovery on Wednesday (May 16), most added to losses which in the case of PotashCorp have driven shares to their lowest in nearly two years.
Shares in Mosaic edged 0.1% lower, adding to losses of more than 10% already this month, while nitrogen group CF Industries dropped 1.3% to take its May slide to 15.3%.
The shares'' poor performance reflects in part a weak month for shares, weakened by concerns over Chinese economies, weak US jobs data and, in particular, revived concerns over the eurozone.
The Dow Jones Industrial Average has lost more than 4% in May.
However, fertiliser stocks have been hit particularly hard thanks to observations by a number of groups, including Agrium, PotashCorp and nitrogen giant Yara International, of a slower-than-expected start to 2012.
Additional pressure from USDA expectations of a sharp recovery in US corn production and inventories in 2012-13, a factor which, in depressing prices of the grain, bodes ill for farmers'' enthusiasm for forking out for nutrients to improve yields.
Broker Dahlman Rose last week, downgrading hopes for fertiliser shares, said that "the potential for an exceptional corn crop under a variety of acreage and yield scenarios, counters almost all of the bullish theses for fertiliser shares.
"The forecast of a large carryout could prove to be very destructive for corn prices and, subsequently, fertiliser shares. We are struck by the range of scenarios with outcomes that could not only drive corn below US$5 a bushel, but even US$4 a bushel in the more bearish cases."
The USDA has forecast US farmgate corn prices dropping to US$4.20-5.00 a bushel in 2012-13, from US$5.95-6.25 a bushel in the current season, which ends in August.
Deere & Co, the maker of John Deere tractors, on Wednesday cut its forecast for 2012-13 corn prices by US$0.45 a bushel, to US$4.85 a bushel.
However, data from PotashCorp showing a month-on-month drop of 455,000 tonnes in stocks of potash held by North American producers in April, and a drop of some 232,000 short tonnes in US producers'' stocks of phosphates to well below average levels, were viewed by some investors as an upbeat sign for fertiliser stocks.
The drop in potash inventories was "a positive signal", AtlaCorp Capital analyst John Chu said, adding that he was "cautiously optimistic" over demand for the nutrient.
AtlaCorp Capital has an "outperform" rating on PotashCorp, with a target of US$55.00 for the New York listed shares.