MagIndustries Corp MAAFF

Fertilizers Desjardins securities

[persepolis72]

Fertilizers
Strengthening grain markets—good news for fertilizer producers -- John Redstone [phone], [e-mail]
Impact: Positive
Unlike other commodities, grain prices have risen this week. Both wheat and corn prices rose roughly 3% this week to US$7.43/bushel and US$7.06/bushel, respectively. The main drivers of the price increases were concerns that wet weather in the US Midwest would hinder crop planting, and increased purchases of wheat by China. According to the US Department of Agriculture, China bought 116 KMT of hard red spring wheat this week--the largest weekly purchase since July 2005. This has fuelled speculations that the dry winter in China has had a severe impact on the wheat crop and that there may be further strong Chinese imports of wheat, corn and other grains. In addition, corn prices continue to draw support from high prices for ethanol.
In our view, as corn prices move above US$4/bushel, farmers have sufficient incremental income to increase their purchases of fertilizers. We expect corn prices to be well above the US$4/bushel level for the foreseeable future.
Most fertilizer prices are either ‘firm’ or ‘improving’. According to the FMB Group, potash prices this week moved up roughly EUR18-20/tonne to EUR355/tonne (US$475/tonne), including cost and freight (cfr). Prices for standard grade material in North America are already in excess of US$500/tonne cfr. We expect world prices to increase to US$600/tonne cfr (our long-term price) in 2012 as supply and demand in the potash market remain finely balanced.
We maintain our Buy--Average Risk recommendations on POT (1-year target of C$65.50/share) and AGU (1-year target of C$106.30/share).
Mr Paul Burnside of CRU will be our speaker on the potash market at our upcoming Commodities Conference on May 5 (Thursday) at the Design Exchange in Toronto.