Fertilizer companies are getting a more bullish outlook from Citigroup (NYSE:C), as Potash Corp. (NYSE:POT) and Mosaic (NYSE:MOS) are considered to be desirable at this time because of attractive valuations and stronger fundamentals, according to Citigroup analyst P.J. Juvekar.
Particularly noted by Juvekar was the was declining fertilizer exports from China and sustainable pricing strength.
Juvekar wrote in a note to clients, “According to the USDA farm income is expected to increase 20% this year, which should incentivize farmers to fully fertilize this fall. High commodity prices and the relatively gradual pace of fertilizer price increases have reduced the share of revenue that growers need to spend on fertilizers. The USDA estimates that this share will decline to 10.3% this year, well below the recent peak of 12.1% in 2008. This suggests that farmers have the financial wherewithal to absorb current fertilizer prices and even potentially higher prices, should crop prices remain elevated.”
Short term there appears to be little concern over lower utilization rates because of wet and cooler weather, as well as lower acreage planted, for corn. Over the long term it's considered a positive for the sector.
He raised his ratings on both companies from a "Hold" to a "Buy." Price targets on Potash was boosted to $67, while Mosaic was increased to $85.
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