Why Citigroup Is Bullish on Fertilizers

Grain prices will move higher, according to Citigroup Global Markets analyst P.J. Juvekar. He thinks that will lead to multiple expansion in the fertilizer sector, and has turned bullish on the whole group. He upgraded Agrium Inc. (AGU), Mosaic Co. (MOS), and Potash Corp. of Saskatchewan Inc. (POT), and made hefty price target increases to each one.

Put simply, Mr. Juvekar believes that the strong fundamentals of the agriculture sector should trump concerns about the China potash contract. Investors have worried that potash prices could fall below last year's settlement with China of $575 a tonne.

As an alternative for worried investors, he offered up three very positive signs for the market:

- Grain supplies are tight. He believes that there is no "cushion" against an unforeseen event (such as bad weather) that could have a huge impact on prices.
- The U.S. planting season is behind schedule. He cited a report that U.S. corn plantings are 62% complete, compared to an average of 85% at this point for 2004 to 2008.
- Market stabilization and easing of deflation concerns. That is good for all commodities.

Mr. Juvekar upgraded Potash Corp. and Mosaic to "buy," and Agrium to "hold". He raised his price targets on each one by at least 50%, with Potash Corp. rising to $145.00 a share (from $83.00), Mosaic rising to $72.00 a share (from $48.00), and Agrium rising to $55.00 a share (from $36.00).

Citi also upgraded Israel Chemicals Ltd. (ISCHF.PK) and K+S AG as part of a global call on fertilizers.

Comments

[Jasper M:]

Citi is bullish on fertilizer because . . . . No, no, too easy . . .

May 24 02:26 AM

[mplaut:]

The Potash market (as distinct from the nitrogen and phosphate market) is dominated by a relatively few players and especially POT. In their conference calls, POT has been saying time and again that they have seen the ups and downs before and they know what they are doing and they will not allow the potash market to collapse. So far it is holding, but of course the big question is the Chinese contract. But since they have held out so far, it is not likely that POT will cave in over that.

The factors cited by Mr Juvekar apply to all three major fertilizer components, and if they hold, will contribute to better pricing all across the board and not just in Potash.

May 24 10:47 AM

[long_on_oil:]

This should be great news for Monsanto and their seed and round up business. I would think Monsanto would be a great play....any thoughts?

May 24 08:06 PM

[jayminho:]

probably citi is developing a new fertize to.. fertize the greens .
they betterr make it triple.. more.. quadriple.. and so on..

fertilize their money.

May 25 05:55 PM