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Sometimes, you have to believe that Mother Nature has taken a long position in fertilizer companies. The companies have been booming as the world increases its protein intake, which requires more potash and nitrogen to grow the crops to feed the cows and pigs. Now, the companies are likely to get another big boost following the recent flooding in the United States.
Don Carson, research analyst at Merrill Lynch, raised target prices on all six fertilizer stocks he covers, including Canada's Potash Corp. of Saskatchewan Inc. and Agrium Inc., based on the argument that the U.S. Department of Agriculture is forecasting 35-year lows for corn supplies in the 2008/2009 season – a forecast that could prove optimistic given that the U.S. is supposed to provide 40 per cent of the global supply.
“Recent floods have exacerbated already poor planting conditions caused by a late wet spring which could lead not only to below trend yields but to a greater than expected reduction in harvested acreage that would further reduce projected corn inventories,” Mr. Carson said in a note to clients.
He believes that corn plantings are going to have to ramp up in 2009 to rebuild inventories, which should put even greater demands on fertilizer – with peak earnings still several years away – even though the flooding could put a dent in second-quarter fertilizer shipments.
Mr. Carson is maintaining “buy” recommendations on all six fertilizer stocks: Potash Corp. Agrium, The Mosaic Co., CF Industries Holdings Inc., Terra Industries Inc. and Intrepid Potash Inc.
For Potash Corp. his new 12-month price target is $300 (U.S.), up from $260 previously. (The shares trade in New York, as well as Toronto.) In the case of Agrium, his new target is $155, up from $115.
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