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In the fertilizer sector, quarterly earnings results measure the financial past, but corn prices signal the profit prospects for the future. The recent swoon in North American corn prices should have investors in domestic fertilizer producers bracing for stock price weakness.

Agrium's stock price movement has been closely tied to the price of corn and this was great news for investors during the 2012 drought (see chart). Now however, the corn price is in free fall after the U.S. Department of Agriculture released data showing far larger stockpiles of corn than the market or farmers expected.

In the futures market (lest we forget, the futures market was invented as a means for farmers to hedge crop prices), corn prices have dropped 11 per cent in the past few trading sessions. The corn price acts as a signal for farmers who are now deciding how much corn to plant for the current season. The falling corn price will limit planting, and also the demand for fertilizer.

Investors in Agrium or Potash Corp of Saskatchewan should pay close attention to the corn price in the weeks ahead as planning season begins as a leading indicator of stock performance. All is not lost, yet – excessively low planting or the continuation of drought conditions could see the commodity price recover during the summer. But investors should be aware of the possibility of more indications of corn surplus that will limit gains in related equities.

Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.

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