Yara to benefit from rise in corn and nitrogen fertilizer prices

11 August 2010 17:44  [Source: ICIS news]

LONDON (ICIS)--Yara International is well positioned to profit from the projected rise in corn prices, driven by lower inventory levels, which will in turn lead to increased nitrogen fertilizer prices, particularly urea, investment bank JP Morgan Cazenove said on Wednesday.

The rally in wheat prices, which have risen by 30% over the past month, driven by supply concerns including the Russian export ban, wet weather in Canada and droughts across Europe, was unlikely to continue, with wheat inventories remaining relatively comfortable, JP Morgan Cazenove said.

However, the investment bank said that other grain prices, in particular corn, could continue to strengthen as inventory levels appeared more fragile, which would in turn give a lift to nitrogen fertilizer prices.

"In our view, Yara’s earnings and share price continue to offer the greatest leverage to rising grain prices. A modest (2-3%) year-on-year increase in the rate of nitrogen fertilizer demand would tighten the overall market significantly, and lead to sharply higher prices and margins," it said.

On top of an improving demand backdrop, JP Morgan Cazenove said that Yara International, which released one of its best ever set of quarterly results on 16 July, would also benefit from the rising marginal production cost of urea, after the recent removal of the gas subsidy for Ukrainian producers, which in turn increased their production costs.

Additionally, JP Morgan Cazenove said that Swiss agrochemicals company Syngenta, which announced that its first-half net income fell by 11% year on year to $1.25bn (€950,000) last month, would also benefit from the price increase.

Rising grain prices and improving farm profits would improve demand and mean surplus crop inventories were consumed quicker, which would in turn bring recent severe price competition to an end, it said.

($1 = €0.76)

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By: Franco Capaldo
+44 (0)20 8652 3214

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