Tuesday, January 13, 2009

Fertilising profits (MOS)

From FT Alphaville:

Ah, fertiliser.

In these days of intensive farming, you can’t live without it. Despite that, fertiliser prices go largely overlooked as economic indicators. They do, however, provide a very useful insight into what you can expect on the supply side in soft commodities - in grains in particular.

Moreover, because nitrogen-based fertilisers are derived from chemicals taken from natural gas, the price of energy commodities can also highly influence fertiliser price - with a lagged effect. For example, the American Farm Bureau estimates natural gas typically accounts for 80 percent to 90 percent of all input costs in the making of fertilisers.

Accordingly, the world’s biggest agri company Cargill reported the following on Tuesday (our emphasis):

CHICAGO, Jan 13 (Reuters) - U.S. agribusiness and trading giant Cargill Inc reported a 25 percent jump in quarterly earnings on Tuesday thanks to its investment in the fertilizer industry through its holdings in Mosaic Co. Excluding earnings from that investment, Cargill’s results were moderately below a year ago....
...As Saxo Bank explained last week (our emphasis):

The month long rally in Grains and Soybeans products paused for a bit this week as lower crude prices and weather forecasts promising rain in large parts of Brazil and Argentina resulted in some profit taking. Also aiding the sell off were poor macroeconomic data, struggling equities and rebalancing. Corn also saw some selling early on ahead of the rebalance but also on reports that fertilizer prices have declined significantly in recent weeks, which will add to 2009 US planted corn acreage.

The American Farm Bureau’s confirms the above mentioned fall in fertiliser prices in its latest report. After contending with rising prices for the last six years, farmers will undoubtedly be relieved. As the bureau’s economist Terry Francl explains, up until very recently fertiliser prices were becoming almost prohibitively expensive, ‘astronomical’ at both the wholesale and retail level due to the corresponding commodities boom....MUCH MORE

That first sentence has been uttered by many a forensic accountant.