Tags: Agrium | spring | planting AGU

Agrium Cashing in On Spring Planting

By    |   Wednesday, 15 February 2012 10:32 AM

Everyone looks forward to the warmth of spring after a cold winter, but fertilizer giant Agrium (AGU) has its eyes set on something better: Cashing in on a hungry planet by getting ready for spring planting.

With much of the world sitting on low or exceptionally low stocks of basic commodities such as grains, demand for seed and fertilizer to catch up on those deficient stocks is expected to be high.

The United States, for example, is expected to plant more acres of corn this spring than has been seen since World War II.

That boost in corn acres is underscored by a poor harvest in South America due to ongoing drought. Poor harvests mean higher commodity prices, which puts cash into the pockets of farmers and back out again into the pockets of seed distributers and fertilizer manufacturers. Since Agrium is a major marketer for Monsanto (MON), a boost in seed demand is a boon to both companies.

The likelihood of a strong spring follows on the company’s recent record fourth quarter reporting, which saw not only $1 billion in cash generated during the period but full-year net earnings at $1.4 billion, up from $713 million the year before.

The company attributes the significant increase in sales to strong underlying agricultural fundamentals, despite a weak global economy and weak demand for potash.

Crop nutrient sales and potash growth profit were both up by more than a quarter, while crop protection sales were up by more than a third. Seed sales and nitrogen profit both more than doubled.

Weak potash

Weak demand for potash has weighed on competitors Mosaic (MOS), which is idling 20 percent of its production through May, and Potash Corp. (POT), which J.P. Morgan recently cut it to neutral from overweight. The three together make up Canada’s potash cartel, Canpotex.

Despite weak demand expected to continue through the first quarter, Agrium’s board recently approved the 1 million ton expansion of its Vanscoy potash facility in Saskatchewan to 3 million tons. The company says the brownfield project, which should finish by the middle of 2014 at a cost of $1,500 per ton, will be much cheaper and much quicker than a greenfield project.

BMO analyst Joel Jackson recently told Canada’s Globe and Mail newspaper, “The potash industry has lost price momentum, but potash should outperform on price relative to nitrogen and phosphate in 2012 with slight price increases from current levels in 2012.”

Jackson recently upgraded AGU to outperform from market perform with a price target of $98.

The company reports first quarter earnings on May 9.

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Wednesday, 15 February 2012 10:32 AM
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