* Surging grain prices expected to boost fertilizer use
* PotashCorp results seen overshadowed by BHP takeover bid
* Bullish forecasts expected from PotashCorp and Agrium
(All figures in U.S. dollars, unless noted)
By Euan Rocha
TORONTO, Oct 25 Canada's two big fertilizer
companies, Potash Corp (POT.TO) and Agrium Inc (AGU.TO), are
expected to report strong quarterly earnings driven largely by
big gains in the price of nitrogen and phosphate-based
Surging grain prices and an early harvest across North
America have given farmers a wider window for fertilizer
application this fall. That provides an incentive to boost
fertilizer spending ahead of the spring planting season.
Gleacher & Co analyst Edlain Rodriguez expects both
companies to issue bullish outlooks, given the strong
fundamentals in the agricultural sector.
"A lot of the price increases we've seen will not get
captured until the next quarter," said Rodriguez. "The third
quarter will be solid for both companies, but the fourth
quarter and coming first quarter will be much better."
That said, Potash Corp's results and outlook are likely to
be largely drowned by comments related to its ongoing battle
with BHP Billiton (BHP.AX)(BLT.L), the world's largest mining
The Anglo-Australian miner launched a $39 billion hostile
bid for Potash Corp in August. The world's largest fertilizer
maker has flatly rejected the $130-a-share offer, as "grossly
inadequate" and sued BHP in an attempt to stymie a takeover.
Analysts expect Potash Corp's Chief Executive Bill Doyle to
use the company's earnings conference call this Thursday, to
talk about the bid. Doyle, a consummate salesman, has tried to
convince investors that the BHP offer is a "non-starter."
"I'm sure he'll say something to the effect that the bid
doesn't reflect the value of the company long term, and it
certainly doesn't reflect the impact of better economics in the
short term -- and I think that is perfectly valid," said Soleil
Securities analyst Mark Gulley.
Fertilizer and corn prices: link.reuters.com/nac28p
For BHP-Potash Corp stories [ID:nN22340110]
GRAIN PRICES SPIKE
Over the last three months, shares of the top-tier North
American fertilizer companies have risen between 35 percent and
45 percent. Even though BHP's bid for Potash Corp initially
helped boost valuations within the sector, surging grain prices
have driven the momentum since then.
Morgan Stanley analyst Vincent Andrews contends that this
year's spike in grain prices is much more sustainable than the
one that occurred back in early 2008.
"We do not believe that either fertilizer EPS estimates, or
valuations have gotten ahead of fundamentals, but rather are
still in the "catch-up" part of the cycle," said Andrews in a
note to clients.
The price of wheat has risen more than 45 percent since
July, as Russia -- one of the world's top producers -- banned
exports of the cereal for the first time in 11 years, after its
worst drought in a century.
The price of corn, which rose in tandem with that of wheat,
received a further boost this month, after the U.S. Department
of Agriculture cut its estimate of this season's corn crop.
Since July, the price of corn on the Chicago Board of Trade has
risen by more than 60 percent at about $5.70 a bushel.
Similarly, the price of sugar, soybean, coffee, rice and
other crops have risen sharply since the middle of this year,
leading analysts to conclude that farmers across the globe, are
well positioned to boost their fertilizer spend in the next
In addition to being a big fertilizer maker, Agrium is also
the largest North American farm products retailer, and the
company is well positioned to top expectations. It reports
quarterly results on Nov. 3.
"Retail should do well for Agrium. If anything, you might
not see the bulk of it in the quarter they are going to report.
But next quarter, as demand starts picking up for the fall
application, that's when you are going to see the big boost,"
($1= 1.02 Canadian)
(Reporting by Euan Rocha)