June 4, 2012 / 6:00 PM / 5 years ago

Potash, Mosaic hit 22-month lows on economy fears

* Four analysts cut POT targets in past week

* Big U.S. corn crop, potash supplies weigh

By Rod Nickel

WINNIPEG, Manitoba, June 4 (Reuters) - Shares of Potash Corporation of Saskatchewan and Mosaic Co , two of the world’s biggest fertilizer makers, fell to their lowest levels in nearly 22 months on Monday, highlighting the growing bearish sentiment around producers of crop-boosting soil nutrients.

Other fertilizer producers also lost ground on Monday, weakened by ongoing concerns about the global economy.

“Sentiment is extremely negative, for all commodities, and that’s what’s really driving it the last couple of weeks,” said Edlain Rodriguez, an analyst at Lazard Capital Markets. “People think, ‘the global economy is slowing down, so if that’s the case, demand for all commodities will come down.'”

Even so, corn prices, usually a key influence on fertilizer stocks because of the crop’s intensive needs for nutrients, were stronger on Monday due to concerns about dry U.S. weather, while the commodities benchmark Reuters-Jefferies CRB index rose slightly.

“I think eventually people will realize ... corn prices are not going down as much so that should be good for fertilizer,” Rodriguez said. “But right now it’s a question of shoot first and ask questions later.”

Potash Corp’s shares in New York fell 1.7 percent in early afternoon trading on Monday to $36.87, touching their lowest level since August 2010.

Four out of 27 analysts have lowered their price targets in the past week on Potash Corp, according to Thomson Reuters I/B/E/S. More than 70 percent still rate the stock as a buy or strong buy, unchanged from a month ago.

Mosaic, the world’s second-biggest potash miner by capacity after Potash Corp, and a top phosphate producer, also fell to a nearly two-year low, tumbling 3.1 percent.

Producers of nitrogen, a fertilizer in tight supply in some areas of North America, have been more resilient this year, but Agrium Inc and CF Industries also dropped on Monday by 1.1 and 4.7 percent respectively.

Commodity prices are vulnerable to global macroeconomic concerns because investors often react by pulling money from those riskier assets.

BIG CORN CROP, POTASH SUPPLIES WEIGH

Supply and demand fundamentals are also a mixed bag for potash.

U.S. farmers expect to produce one of the biggest corn harvests on record, which stands to weaken the crop’s price sharply in the second half of the year and leave farmers less incentive to apply fertilizer for next year’s crop.

North American potash inventory levels in April were 25 percent higher than the five-year average, said analyst David Begleiter of Deutsche Bank in a note to clients last week, as he cut his Potash Corp price target to $45 from $55.

Moving those supplies to off-shore customers became more difficult recently when a strike shut down the main rail carrier of Canadian potash shipments to port, Canadian Pacific Railway Ltd, for nearly a week last month.

To be sure, potash shipments by Canpotex - the export arm for Canadian mines owned by Potash Corp, Mosaic and Agrium - have been strong in the second quarter after a slow start to the year. Potash Corp CEO Bill Doyle said in late April that he expects demand to pick up for the rest of 2012.

But analysts have also watched closely as BHP Billiton talks about potentially delaying projects, including plans for the world’s biggest potash mine at Jansen, Saskatchewan.

While a delay might be good news for other potash producers, it also signals that the world’s biggest miner is not immune to global economic headwinds.

“This (possible delay), coupled with grain prices falling back toward six-month lows on bumper global harvest prospects and ‘risk-off’ markets, supports our cautious views,” analyst Robert Winslow of National Bank Financial, wrote in a note to clients late Sunday evening.

Winslow cut his price target for Potash to $35.50 from $42.

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