Analyst downgrades US fertilizer shares on big corn crop

09 May 2012 17:55  [Source: ICIS news]

HOUSTON (ICIS news)--The possibility of a large US corn crop and lower prices for corn led an analyst on Wednesday to downgrade the shares of several major fertilizer producers.

"The growing possibility of an exceptionally large corn crop, which has the potential to significantly reduce corn pricing as the crop progresses, spells trouble for the fertilizer shares," said Dahlman Rose investment analyst Charles Neivert.

"As such, we are downgrading both CF Industries (CF) and CVR Partners (UAN) to sell from hold and Rentech Nitrogen Partners (RNF) to hold from buy," Neivert said.

Dahlman Rose is maintaining its hold ratings on Agrium and Mosaic and maintaining its sell ratings on PotashCorp and Intrepid Potash.

The US Department of Agriculture (USDA) has projected that the farmers will plant 95.9m acres (38.8m ha) of corn in 2012, the most planted since 97.2m acres in 1937.

The USDA on Thursday will release its monthly World Agriculture Supply and Demand Estimates (WASDE), which will include an estimate of the corn supply remaining from the 2011 crop.

"We believe that the WASDE report will be a catalyst for a reassessment of fertilizer shares," Neivert said.

"We fully understand the risks to our forecast based on weather issues, leveraging of balance sheets and the possibility of crop reallocation. However, we have assessed these risks and believe that with the fundamentals playing out over the next three to six months (and assuming that weather remains neutral through the growing season), the downside risk seems to greatly outweigh the upside rewards at this time," said Neivert.

By: Frank Zaworski
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