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Dahlman Rose has issued another rating for a few fertilizer stocks on Thursday:

  • Agrium Inc (NYSE:AGU) Sell
  • CF Industries Holdings (NYSE:CF) Sell
  • Potash Corporation (NYSE:POT) Sell
  • Rentech Nitrogen Partners (NYSE:RNF) Sell

I want to focus on one of my favorite stocks, RNF and the way that Dahlman Rose has upgraded/downgraded this stock, and the price it was each time they have done so.

Date

Action

Price

Feb. 21, 2013

Downgrade Buy to Sell

$39.79

Jan. 24, 2013

Upgrade Hold to Buy

$44.29

Aug. 1, 2012

Downgrade Buy to Hold

$30.56

June 24, 2012

Upgrade Hold to Buy

$26.50

May 9, 2012

Downgrade Buy to Hold

$25.45

I wrote an article on May 15, 2012 titled "No True Reason To Sell Your Fertilizer Stocks". By this date, RNF fell to $23.27 and I screamed about how it was a solid buy for everyone, and the big reason of the downgrade was due to falling corn future prices. Well guess what everyone - as long as corn is still profitable, the farmer is going to plant it and the fertilizer will be needed! This was true last year and will be true again this year. Looking now at more data, I feel as if Dahlman Rose may be trying to manipulate these stocks for their liking.

Corn futures have come down in price a little recently from all-time highs, but they are still very healthy.

Future Date

Current Price per bushel

High Price per bushel

ZCH13 (March 2013)

$ 6.90

$ 8.45

ZCK13 (May 2013)

$ 6.84

$ 8.17

ZCN13 (July 2013)

$ 6.72

$ 8.24

ZCU13 (Sept. 2013)

$ 5.73

$ 6.99

Also according to Brugler corn report, export corn sales were better than predicted and the USDA predicted that corn output would be 163.5 bushels/acre, and 14.53 billion bushels total. The USDA was also extremely bullish on production last year, predicting 166 bushels/acre and a total production of 14.79 billion bushels. However, due to drought conditions, the yield was 123.4 bushels/acre and 10.78 billion bushels produced. 2011 was a better year, with 147.2 bushels/acre and 12.358 billion bushels total. 2011 was a very good growing season, and I would expect yields to be closer to those totals per acre.

According to this article, revenue protection for crop insurance is currently exceeding $5.60 per bushel, which will make corn production that much more attractive.

So this downgrade must be due to sharply falling fertilizer prices, right? Well, wrong again - fertilizer is actually coming back up in price. According to farmfutures.com, UAN prices have gone up for six straight weeks now, up $5 at the Gulf for 32%, now at $337.50. Prices in the Corn Belt states (where RNF is located), are $377.50 in Illinois and $412.50 in Iowa. This isn't any cheaper than last season, when RNF beat expectations.

You also have to remember that RNF is now in the Diesel Exhaust Fluid (DEF) business. The average price nationwide for a gallon of DEF is around $2.75 per gallon. DEF is made from high quality UREA and de-ionized water.

RNF will have a fall outage this year for maintenance, but also during that maintenance, it is planning a 23% expansion to its ammonia plant, which will increase production by 70,000 tons annually, and increase on site storage of ammonia by 20,000 tons. This should increase distributions for 2014.

Below is a one year chart of all the stocks downgraded on Thursday. These same stocks were downgraded last May as well.

AGU Chart
(Click to enlarge)

AGU data by YCharts

What does this show? Well, the lowest prices were actually in early June, about 3 weeks after Dahlman Rose downgraded these stocks for "similar reasons" last year.

My recommendation: Follow all of these downgraded fertilizer stocks closely, and see in 2-3 weeks if they have settled even farther to a bottom. RNF at a $32-34 level would be a great value with a projected 10% payout. Another nitrogen fertilizer stock I have not mentioned here that was not downgraded is CVR Partners (NYSE:UAN). It is currently sitting around $25 a share with projected distributions of $2.25-$2.35 per share for 2013. If this stock falls to a $22-23 price range, it would be a similar payout buy. I believe these numbers are very probable based on the history of these stocks after haphazard ratings changes.

Source: Rentech Nitrogen Partners - Do The Opposite Of What Dahlman Rose Recommends