From Notable Calls:
Citigroup is out with a Fertilizer call upgrading Potash (NYSE:POT), Mosaic (NYSE:MOS) to Buy from Hold and Agrium (NYSE:AGU) to Hold from Sell.
Looking Past the China Contract — In recent months investors have been sharply focused on the upcoming China potash contract and the risk potash prices could fall below last year’s $575/t level. However, the bigger risk in Citigroup's view is that the Ag complex will continue to rally on stronger grain fundamentals. There are three key reasons grain prices are moving higher, thus creating an environment for multiple expansion for fertilizer stocks:
- Grain Supplies Remain Historically Tight — Last week’s USDA report indicated lean grain inventories, including significantly tighter corn stocks-to-use (16% vs. 20-year avg. of 24%). In our view grain prices don’t have a “cushion” – another major weather event or poor crop for a major producer (US, Ukraine, Argentina) could move corn prices closer to the $5.00+ range we saw last summer.
- The US Planting Season Is Seriously Behind Schedule — Wet cold weather has significantly delayed much of the US corn crop. The latest crop progress report indicates corn plantings are 62% complete, behind the 85% average rate for 2004- 2008. Soy plantings are lagging as well, at 25% vs. the 44% average rate....MORE