Over the last several weeks, I have read countless analyst reports, news articles and blog entries that have all tried to make the case that the earnings of the fertilizer companies are all set to soar. The investment thesis proposed by these authors revolves around surging world demand and the recent flooding in the Midwest. While the flooding has been tragic, fertilizer bulls have argued that the flooding will act as a catalyst for companies such as Monsanto (MON) and Potash Corp. (POT).
These traders are speculating that farmers will choose to replant their crops in an effort to cash in on surging commodity prices, and that to achieve these results they will be forced to relay on tremendous amounts of fertilizer to ensure adequate crop yields. Given the current supply and demand imbalance in the food markets I have no doubt that the long-term thesis for fertilizer stocks is correct; however, in the short term I believe that the fertilizer bulls are mistaken, as they are ignoring the basic planting cycles for corn and soybeans. It is my opinion that it is simply too late for farmers to replant in an economic manner.
According to the Iowa State extension office the optimum time to plant corn is between April 20 and May 10. The longer that one delays planting, or takes to replant, the dramatically lower the crop yield will be. While Fertilizers may help support late plantings, there comes a point where the cost-benefit equation is decidedly against farmers. I believe we are very close to that point. After all, we must remember that farmers are some of the most subsidized Americans and the most recent farm bill is but another example of the strong support that farmers have on Capital Hill. Even if they do not replant, they are guaranteed a significant amount of replacement income, which for some is tied to the prices of the crops they would have produced. Since this is the case, I see no reason for farmers to spend additional money on fertilizer products when they can simply collect from the government at the end of the year.
Below is an interesting chart on corn yields matched up against the planting date. When looking at the chart it is important to remember that it is nearly July and the ground is still wet.

Those who farm soybeans are in a similar predicament. According to the Iowa State extension office the optimum time to plant soybeans is between April 25 and May 5. Much like corn yields, the yield for soybeans declines dramatically the further into the summer you get. Soybean crops will be at a greater disadvantage than corn crops this summer because they are more finicky and tend to perform poorly in saturated soils; when this occurs, disease in the seedlings can run rampant. Below you will notice that the soybeans chart is quite similar to that of corn. 
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This article has 14 comments:
So if you're going to talk about growing cycles, next time, include more than just the local market.
M Khan
Do some DD man. The reason CanPotEx is working on doubling their capacity for overseas shipping might be because, most of their product goes overseas where your theory about planting cycles ... isn't worth the dirt they fertilize.
Even with reduced yields, farmer are replanting due to the high corn prices. Corn has hovered around $2.00/bushel and it's over $7.00+, do the math!
Farmers are a positive bunch. There is still corn being planted or replanted, along with soybeans, depending on location.
Also pretty good analysis of what to buy, predictions for the future.
Micheal, it seems as if your tidbit is vital - it's too late for corn, but you can still plant another crop.
The author could have been more clearer Cicero! He didn't get into the specifics of the growing world demand that even in the short term will affect fertilizer prices. The US market is just one part of it. He only chose to talk about the US market in the short term and didn't talk about the World market in the short term! I think that would have been more clear if all the data was included.