Surprise boost in US crop inventories shakes fertilizer shares

12 October 2011 17:18  [Source: ICIS news]

USDA reports higher than expected corn inventory numbersHOUSTON (ICIS)--Fertilizer company shares moved lower before rebounding on stock exchanges on Wednesday after the US Department of Agriculture (USDA) reported higher than expected corn inventory numbers while reducing corn and soybean production estimates by 1% from September.

In the October World Agriculture Supply and Demand Estimates (WASDE) released by the USDA, 2011 corn yield was projected at 148.1 bushels/acre, the same as the September estimate.

Harvested corn acres were estimated at 83.9m (34.0m ha), which reduced the crop estimate to 12.4bn bushels from 12.5bn bushels projected last month.

Soybean yields were trimmed to 41.5 bushels/acre from 41.8 bushels/acre in September. Harvested soybean acres were set at 73.3m for an estimated harvest of 3.06bn bushels, down from 3.09bn bushels in September.

While the USDA lowered production less than markets expected, total corn supplies expected to carryover on 1 September 2012 were increased to a higher than anticipated 866m bushels

Meanwhile, the USDA said total use for feed, fuel, food and exports was lowered by 50m bushels resulting from higher production and exports in the Black Sea region.

"The increase in the estimated corn ending stocks for September 2012 is bearish for grain prices and the fertilizer complex," said Dahlman Rose analyst Charles Neivert.

"We would expect fertilizer shares to be under some pressure, especially nitrogen players such as CF Industries (CF), as higher corn inventory levels reduce concerns of tight grain stocks," Neivert said.

In mid-morning trade at the New York Stock Exchange, CF shares were trading off by 1% while other fertilizer companies such as Mosaic, PotashCorp and Agrium were higher by 0.5%-1.5%.

CF is the leading producer of ammonia and other nitrogen fertilizers that are critical for grain production.

Mosaic and PotashCorp are leading producers of phosphate and potash fertilizers, while Agrium is North America's largest fertilizer retailer.

At the Chicago Mercantile Exchange on Wednesday, December corn futures were trading down 10 cents from the previous day to $6.35/bushel while soybeans were off a penny to $12.34/bushel.

Higher corn prices support fertilizer sales as plant nutrients become more affordable in a farmer's crop production budget. Higher corn prices also narrow margins for ethanol producers.

Global corn production is raised by 5.4m tonnes with foreign production increases more than offsetting the U.S. reduction, USDA said. 

Despite the increase, 2011-2012 world corn ending stocks would be the smallest since 2006-2007.

By: Frank Zaworski
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