RE: Reading Potash Corps F/S<< In reading Potash Corps Q1 results they state that "China has beenslower to respond, impacted by weak farmer engagement as a result ofpoor weather conditions in key growing regions". Any one know if thisrelates to grains? or fruits and Veggies? Tobacco? or all of theabove? >>
That's a good question. Probably best to ask the company. Scotia's comment on China weather was:
Southwestern China Worst Drought in 60 Years
A massive and prolonged drought affecting 50+ million people continues to cripple
China's southwestern provinces including, Yunnan,
Guizhou, Guangxi, and Sichuan (Exhibit 1). Most of the
affected areas have not had rain since October. Reservoirs
have dried up and millions of Chinese now face drinking
water shortages, including 8.3 million in Yunnan Province
alone.
China's Minister of Water Resources confirmed that
6.5+ million acres of farmland in the drought-stricken
area is effectively bust, as soils there are too dry to bear
crops. Yunnan's Luliang County, the province's largest
plain and irrigation district, has had a startling 99% of its
sown area impacted by the drought (Exhibit 2), resulting in
immediate agricultural losses of US$3.5+ billion.
China's current drought has been far worse than
normal due to: (1) an early end to last year's rainy season;
and (2) unusually high temperatures courtesy of El Niño.
According to NASA, from September 2009 through
February 2010, rainfall deficits in the region have been
between 50% and 60% worse than normal, with Yunnan
experiencing precipitation deficits in the 70% range.
Government view: The Minister of the Office of State
Flood Control and Drought Relief Headquarters (SFDH)
stated several days ago, "the situation is looking quite
grave this month, as less rain and higher temperatures
are forecast for the region". Additionally, a warning was
made by the Minsister that there is now an increased
possibility that the drought-affected areas could also
suffer from flooding in the future.
Unlike North America, which experiences relatively even
rainfall year-round, China experiences extreme
precipitation variability due to its annual monsoon season.
Between six and seven months of dry winter weather is
characteristic of sub-tropical regions such as China's
Yunnan Province.
Northwestern China Unseasonably Cold
Northern China continues to face unseasonably cold
weather as we move through the spring planting season. A
heavy snowfall was just reported in Heilongjiang Province.
Planting of corn and soybeans in northern China is
delayed, increasing the risk of reduced production this
year. It is only a matter of time before China begins
importing corn again.
According to China’s Ministry of Agriculture, belowaverage
temperatures since November, pushed northern
China’s wheat crop into hibernation 15 days earlier than
usual. Additionally, the late arrival of spring then delayed
the crop’s greening phase by 10 days. We note that the
affected area of wheat, about 3.5 million hectares, is
considered inferior, or third-class wheat.
Impact to Migao
Pricing: Migao’s SOP is currently selling for RMB2,800/mt,
down from RMB3,100/mt only one month ago.
EPS: We eased Q4/10, (March 31) EPS by 1¢ to 15¢,
reduced Q1/11, (June 30) EPS to 15¢ from 18¢, and took 2¢
off Q2/11, (September 30) EPS to 18¢. The earnings
reductions are more heavily weighted to lower realized SOP
pricing rather than volumes.
Valuation: We reduced our P/E multiple by 0.5x to 9x
2H/11E and 1H/12E EPS. Our revised one-year target
price is $9.00 per share, down 50¢.
Rating: We maintain our 1-Sector Outperform rating, and
continue to believe that, despite the near-term impact of the
drought, Migao remains the best Chinese fertilizer midcap
play over the next 12 months.