US harvest delay to weaken fertilizer season – Citigroup

14 September 2009 19:49  [Source: ICIS news]

HOUSTON (ICIS news)--The coming autumn US fertilizer application season will be weaker than expected due in part to a likely delay of 2-4 weeks in the corn harvest, analysts at Citigroup said on Monday.

Drawing on a proprietary survey of farmers in key states, the analysts said the risk that potash prices in particular could fall is discouraging farmers from investing in nutrients, even though they are keen to make up for reduced fertilizer use a year ago.

A drop in US farm incomes this year was also dampening sentiment, they said.

The doubts about potash prices are based on the potential for China to achieve a lower contract price than the $460/tonne (€317/tonne) agreed to by India, and on the potential for Russia's Silvinet and Germany's K+S to break ranks with other producers and cut prices.

The outlook prompted Citigroup to lower its price targets for shares of North American potash producers PotashCorp and Mosaic, and to downgrade its recommendation on those stocks to "hold" from "buy".

"Our earlier thesis that farmers could not skip application indefinitely after taking a 'fertilizer holiday' in 2008-2009 still stands, but application may be delayed past fall," the Citigroup analysts said.

"We are moving to the sidelines on fertilizer stocks, although we do not see much downside in shares from current levels," they said.

Citigroup lowered its 2010 forecasts for North American domestic and export potash prices by around 10%, and dropped its forecast for diammonium phosphate (DAP) by around 20%. It did not revise its ammonia forecast.

In afternoon trading on the New York Stock Exchange, PotashCorp was down $1.34, or 1.5%, at $88.46/share.

Shares of Mosaic were down 96 cents, or 1.8%, at $51.30.

($1 = €0.69)

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By: Stephen Burns
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