Analyst downgrades US CF on prospects of record corn harvest

30 January 2012 22:03  [Source: ICIS news]

HOUSTON (ICIS)--US nitrogen fertilizer maker CF Industries was downgraded from a buy rating to a hold on Monday by investment research firm Dahlman Rose because, among other reasons, a possible record corn harvest in 2012 could lower corn prices.

Dahlman Rose said it was lowering the rating on CF because a potential record corn planting in the US in 2012 could lead to a record corn harvest that would likely result in lower corn prices and ultimately erode agricultural fundamentals.

"Our biggest concern is around the potential record corn planting and possible record harvest," said Dahlman Rose analyst Charles Neivert.

"While a US corn planting of more than 95m acres (38m hectares) is a boost for fertilizer, especially nitrogen products, a harvest level of around 14bn bushels has the opposite effect," Neivert said.

"This record harvest level is large enough to add substantially to global inventories and depress corn prices toward $4.50/bushel from the current December 2012 futures price level of about $5.70/bushel," he said.

December 2012 corn futures closed at $5.65/bushel Monday at the Chicago Mercantile Exchange.

Dahlman Rose also noted that prices for key nitrogen products including ammonia, urea and urea ammonium nitrate (UAN) have passed through a cyclical apex and have significantly eroded in January.

"While we believe that prices will likely recover some of those losses in the spring with the heavy plantings, a trend line crop yield means demand erosion and price pressure following the spring application," Neivert said.

Plus, he added, the key raw materials for nitrogen products, natural gas, may have hit its nadir already, and prices are expected to rise slightly going forward.

"With current low natural gas prices, we see costs at already low levels, and margins may have already peaked," said Neivert.

Additionally, CF shares have approached a fair value estimate of $180/share, Dahlman Rose said.

CF shares closed Monday on the New York Stock Exchange at $177.06/share, down 1.41% from the previous close.

($1 = €0.76)


By: Frank Zaworski
+1 713 525 2653



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