Fertilizer stocks: Essential midweek trends

Fertilizer stocks: Essential midweek trends (Part 1 of 7)

Corn price hits new low, hurting fertilizer and seed producers

The impact of crop price on fertilizer stocks

Crop price can have a significant impact on fertilizer companies’ earnings and share prices. When crop prices are high, farmers feel encouraged to use more fertilizers in order to take advantage of high crop prices and earn more money. Plus, high crop prices make fertilizers more affordable for farmers, which will increase farmers’ income and the amount of fertilizers they can purchase for the next planting season. This will ultimately increase fertilizer demand and prices, which will support the earnings and share prices of fertilizer producers.

Corn Price 2013-10-01Enlarge Graph

Corn price hits a new low

Following the USDA’s September 30 report that corn stockpiles stood at 824 million bushels on September 1 (which was substantially above the agency’s estimate of 661 million on September 12 and analysts’ average expectation of 694 million), corn price fell to a new three-year low. It dropped to as low as $4.35 a bushel by October 2, right on the long-term support. The combined estimated corn ending stocks in the United States, which factor in current, estimated, and projected inventory, jumped from 16.80 million metric tonnes at the end of August to 47.11 million metric tonnes at the end of September—the highest spike since 2010.

Corn inEnlarge Graph

Crop condition stable

The percentage of corn crops in “good” or “excellent” condition, which can have a significant impact on crop prices by influencing yield, stood flat at 55% for the week ending September 27 compared to the prior week. While some late summer heat had negatively impacted crop quality, mid-September rain as well as the end of summer have helped conditions improve. Several blogs have mentioned surprisingly high yield this year, and the effect of drought was more localized this year.

Negative impact on fertilizer and seed suppliers

Higher crop output and inventory figures will support the case for lower corn prices, which can negatively impact fertilizer stocks as farmers cut back on plantation fertilizer use or ask for lower prices. This can negatively impact the revenues of companies such as CF Industries Holdings Inc. (CF), Potash Corp. (POT), and Mosaic Co. (MOS). Monsanto (MON), which supplies patented seeds, should also face weakness. As an ETF that invests in several agriculture businesses, the Market Vectors Agribusiness ETF (MOO) will also be negatively affected.

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