Fertilizer stocks in for rough 2009??

Consensus is building on the Street in Canada and the U.S., calling for a rough 2009 in the fertilizer sector, followed by a 2010 turnaround.

Citigroup Global Markets analyst P.J Juvekar assumed coverage on Potash Corp. of Saskatchewan Inc., Agrium Inc, and Mosaic Co. with short term caution, based on a forecast of a 10 to 20% year-over-year decline in phosphate and potash volumes in 2009.

"We expect many farmers in North America to go on a 'fertilizer holiday' as they 'mine' their soil for fertilizer," he said. "But the nutrient depletion may set the stage for a robust recovery in 2010 that could cause us to revisit our stance."

The analyst has "hold" ratings for Potash Corp. and Mosaic with price targets of US$81 and US$39, respectively. As for Agrium, he rates the stock a "sell" with a US$27 price target.

"We have a sell on Agrium given its potential for retail margin compression and write-downs, amid falling fertilizer prices, and large Nitrogen exposure.

At CIBC World Markets, analyst Jacob Bout also told clients that fertilizer demand and pricing will remain weak at least through the first half of this year, with recovery expected next year. However, he remains more bullish on both Agrium and PotashCorp's long term prospects than his Citigroup peer.

"While [nitrogen] and [phosphate] prices have collapsed, [potash] prices are still buoyed by producer discipline," he said. "We expect reduced plantings in South America and Russia to have an impact on pricing, supporting stronger plantings (and fertilizer demand) in '10."

On a relative basis, he likes Agrium Inc. because of its exposure to the retail fertilizer market, saying retail demand should "hold in well on a year-over-year basis." That should offset weak wholesale results in H1 for phosphate and potash, the analyst said, continuiing to rate these shares "sector outperformer" with a US$60 price target.

Mr. Bout also rates Potash Corp. of Saskatchewan Inc. "sector outperformer" with a US$125 price target. He said potash demand will be on hold until there is a 2009 Chinese potash contract, but once a contract is settled, Mr. Bout believes potash demand will reach 2 to 3% per annum, creating tight market conditions.

From National Post