Agriculture fertilizer stocks - still has growth

Even though commodities' prices have come down from record highs, agribusiness is hardly a fallow sector, Citi Analyst Brian Yu said, deeming fears of slowed agricultural demand "misplaced" in a Sunday note on agricultural commodities.

"We are not suggesting that a global slowdown will have zero impact on grain demand, but [we] want to highlight the weak historical correlation," Yu said. "The point is that fertilizer stocks are being grouped with industrial metals and energy when the supply-demand characteristics are arguably very different."

Shares rallied throughout the agribusiness sector on Monday as Yu said rising cattle and hog prices coupled with low global grain stockpiles bode well for fertilizer fundamentals. Increased meat consumption keeps corn in high demand since the crop accounts for 61.0% of animal feed. That, combined with tight global grain supply, means farmers will continue to invest in fertilizers as a way to maximize crop yields. The Market Vectors Agribusiness exchange-traded fund gained 80 cents, or 1.6% to close Monday's trading session at $49.95.

Soaring fertilizer prices sparked investor concerns of a bubble, especially as corn prices went on a six-week slide on reports that Midwestern flooding didn't destroy as many crops as initially feared. (See " Crops To The Rescue.")

"There is a big different between equities that trade at a low multiple because fundamentals/pricing/earnings are deteriorating and equities that trade at a low multiple [since] earnings expectations are rising while prices have lagged," Yu said, adding that he thinks fertilizers fall into the latter category and reiterating "buy" ratings on Agrium (nyse: AGU - news - people ), CF Industries (nyse: CF - news - people ), Mosaic (nyse: MOS - news - people ), Potash (nyse: POT - news - people ) and Terra Industries (nyse: TRA - news - people ).

Mosaic shares gained 6.1%, adding $5.90 to close Monday's session at $103.42, and CF Industries rose 1.9%, or $2.43, to $131.38. Agrium and CF Industries both added $2.03, or 2.6% for Agrium, which closed at $80.44 and 1.9% for CF Industries, to close at $131.38. Potash rose by 0.1%, adding 23 cents to $170.04.

Yu believes Potash's sell-off--the stock has lost nearly 19.0% in the last month--is overdone, especially since data on Friday showed potash producer inventories fell by 10.0% since July.

Strong results for Monsanto

Comment from Monsanto Chairman, President and Chief Executive Officer Hugh Grant:

"Backed by continued growing demand for our products, the first nine months of our fiscal year has been remarkable and we're now increasing our full-year guidance. This strong growth sets up a solid foundation for our business and to reach our target of more than doubling gross profit in 2012. Because we're both discovering and delivering innovative tools that can help increase productivity on farm, we offer an attractive solution to the farmer and their mission of meeting our world's growing food, feed and fuel needs. While others are asking should it be food OR feed OR fuel, we believe the answer is AND, and we have the solutions in hand to be a significant part of that answer."

Operations Update

Monsanto reported record net sales of $3.6 billion for the third quarter of fiscal year 2008, which were 26 percent higher than sales in the same period in fiscal year 2007. Results in the quarter reflected increased revenues from the company's Roundup agricultural herbicides globally, increased soybean seed and traits revenues in the United States, increased corn seed and trait revenues in the United States, higher corn seed revenues in Europe-Africa, and higher cotton seed and trait revenue in the United States.

Net sales in the company's first nine months of fiscal year 2008 resulted in year-to-date sales of $9.5 billion, which were 35 percent higher compared with sales in the same period last year. Key contributors to the company's growth included increased sales of Roundup and other glyphosate-based herbicides globally, higher worldwide corn seed and traits revenues as well as increased soybean seed and traits revenues and cotton seed and traits revenues in the United States.

Monsanto's net income for the third quarter of fiscal year 2008 was $811 million or 42 percent higher than net income in the same period last year. For the first nine months of fiscal year 2008, net income was 83 percent higher than net income in the same period last year.

Earnings per share (EPS) for the third quarter of fiscal year 2008 were $1.45 both on an as-reported basis and an ongoing basis. EPS for the first nine months of fiscal year 2008 were $3.93 on an as-reported basis, and $3.70 on an ongoing basis. EPS results for the first three quarters were affected favorably by $0.23 per share after tax from the settlement of Monsanto's claims in conjunction with Solutia's emergence from bankruptcy. (For a reconciliation of ongoing EPS, see page 1.)

Bunge earnings to soar

Soybean processor Bunge is using its skyrocketing stock to pay for a $4.8 billion bid for Corn Products International, which refines corn into sweeteners and other products.

Bunge (nyse: BG - news - people ) also told the world its existing businesses--mainly soybean processing, with a dollop of fertilizer added--were doing better than had been thought, increasing its 2008 earnings estimate significantly, to $9.35 to $9.65 per share versus the previous $7.10 to $7.40. Analysts had estimated 2008 earnings at $7.70.

The offer promises Corn Products International (nyse: CPO - news - people ) shareholders $56 a share for their 77.8 million fully diluted shares as long as Bunge's stock trades between $108.90 and $133.10. The soy processor's stock was within that range, at the close of Monday's trading session at $110.87, which was down $11.30 on the day, or 9.3%. Corn Products surged 18.3%, or $7.85, to $50.75. The offer represents a 18.3% premium to the corn products company's Friday closing price of $42.90.

If Bunge trades outside the range it provided, Corn Products investors will get a minimum of 0.4207 of a Bunge share and a maximum of 0.5142 for each of of their shares. Bunge also will absorb $414.0 million of Corn Products debt.

Even after Monday's pullback, Bunge's shares are up 35.8% over the past year. Corn Products has now gained 18.1%.

"Our first take is that this is a good deal for both companies," Citibank analyst David Driscoll said in a note to investors. "Corn Products gets a substantial premium to its prior closing price," he wrote, "and Bunge uses its very strong stock as its currency to do the deal."

Still the sizable fall in Bunge shares reflects some investor disquietude, probably with the hefty premium.

Westchester, Ill.-based Corn Products International makes sweeteners and starches including glucose, high-fructose corn syrup, sorbitol and dextrose, which is found in everything from IV drips to McDonald's (nyse: MCD - news - people ) french fries and Gatorade. While global demand was already taut, U.S ethanol subsidies have driven corn prices making for a very profitable maize business. (See "Portfolio Sweetener")

The move seems sensible for Bunge, since the companies share some customers--corn and soy both are used in as processed food, bakery, animal feed and brewing--and the crops thrive under similar conditions.

Bunge said the deal allows it to build on its core network while expanding further into crucial high-growth areas like China, India, Southeast Asia and Africa.

Bunge estimated that the deal will yield $100.0 million to $200.0 million in savings. Should the merger sour, the deal does carry a $110.0 million breakup fee.

Midwest floods - record corn prices

The worst flooding in the U.S. Midwest for 15 years sent fresh shocks to global markets and consumers on Monday as corn prices hit record highs on fears of crop losses in the heart of the world's top grain exporter.

Corn prices at the Chicago Board of Trade soared above $8 a bushel for the first time as relentless rains and overflowing rivers raised fears that Midwest farmers will not be able to grow much of anything on as many as 5 million acres (2 million hectares).

"The market is being driven by water," said Glenn Hollander, a veteran grain merchant on the CBOT trading floor. "

Estimates show 3 million acres of corn under water and probably 2 million didn't get planted. So that gets you up to 5 million or over 700 million bushels, and that takes out the entire carry-out," he said, referring to estimates for grain stocks carried over to the next crop year.

Overwhelmed river levees across Iowa and Illinois, which produce about a third of U.S. corn and soybeans, have displaced thousands of people.

The White House said U.S. President George W. Bush would visit the stricken region on Thursday. Mostly dry weather was forecast through Wednesday in Iowa, and waters were receding. But those flows were increasing water levels well past flood stage in the Mississippi River, the most important U.S. waterway. A dozen river locks there were already shut down due to the high water, crippling commerce.

Agrium increases guidance to record levels

Agrium Inc. (TSX and NYSE: AGU) announced today that it expects to earn between $2.80 to $3.00 diluted earnings per share in the second quarter of 2008, or $4.03 to $4.23 for the first half of 2008. The significant increase from the previous guidance of $1.92 to $2.22 diluted earnings per share for the second quarter is due to very strong results from both our Retail and Wholesale operations, with Retail expected to account for half of the increase. This guidance excludes any additional impact from stock-based compensation expense or mark to market gains from our natural gas and currency hedging positions.

The guidance also excludes any contribution from our recent UAP retail acquisition. The contribution from UAP’s business is expected to be significant this quarter. For example, UAP’s EBIT for May and June of 2007 was $138-million. Given the strong results demonstrated by our base retail operations, UAP’s earnings could also be higher in 2008 pending the finalizing of purchase accounting and any other potential adjustments.

“Our excellent results are due to strong performance from both our Retail and Wholesale operations, which is particularly impressive given that the North American spring application season has been hampered by excessively cold and wet weather this year. Continued strong global crop prices have created unprecedented demand for crop inputs and we foresee an extended demand-driven cycle.” said Mike Wilson, Agrium President and CEO.

Monsanto - Opportunity in Brazil

Monsanto's international seed brands serve as an ideal launching pad that positions the company for new launches of biotechnology traits with significant scale and ramp-up speed, Brett Begemann, Monsanto's executive vice president of global commercial, will tell investors today at the Merrill Lynch Agricultural Chemicals Conference in New York.

Begemann will cite the examples of Argentina and Brazil, where the company recently received separate regulatory approvals for corn biotechnology traits. In Argentina, Monsanto received the first-ever approval for a double-stack trait combination, YieldGard Corn Borer with Roundup Ready Corn 2, and plans to offer the combination on more than 1 million acres in its year of introduction. Likewise, Monsanto received planting approval for the YieldGard Corn Borer trait in Brazil and is planning for a 1 million to 2 million acre launch for the upcoming 2008-2009 season.

"If you combine the scale of our seed businesses in Argentina and Brazil with our proven ability to deliver traits, we're in the best competitive position to enter new trait markets quickly and with an immediate financial benefit," said Begemann. "These two approvals came a year ahead of our original plan, accelerating this opportunity and giving us what we believe is a significant first-mover advantage that translates to an enduring advantage in these new markets."

Potash still to go up

Potash Corp of Saskatchewan (POT) is poised for significant growth in the next five years as soaring grain prices give farmers the means to pay more for fertilizer, the company's chief executive said on Wednesday.

"We have a lot of pricing power. We're nowhere near peak pricing," Bill Doyle told investors at a Toronto conference held by RBC Capital Markets.

"We clearly aren't experiencing any demand destruction," he said, noting high grain prices support fertilizer hikes.

U.S. corn hit a record high of $7.56-1/4 per bushel for July SN9 futures on Wednesday because of concerns about flooding and excess rain in the U.S. corn belt.

Potash stock hit a fresh top of C$232.93 at the Toronto Stock Exchange on Wednesday, up more than 8 percent.

Potash, the world's largest fertilizer company, has seen its stock soar almost 200 percent over the past year as investors took note of concerns about world food shortages.