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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. (NYSE:AGU), Mosaic Co. (NYSE:MOS), and Potash Corp. of Saskatchewan Inc. (NYSE: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. (OTCPK:ISCHF) and K+S AG as part of a global call on fertilizers.

Source: Why Citigroup Is Bullish on Fertilizers