Overall Outlook Good, But Ag Stocks Falter
Shares in the once-flourishing fertilizer sector have hit the dirt in recent weeks after investors worry that global recessionary pressures would stem demand for commodities despite assurances from the agribusiness sector that its fundamentals remain strong. Ag nutrients company Agrium certainly agrees.
Calgary-based Agrium has its finger on the pulse of the agribusiness industry as the third-largest nitrogen producer and the U.S. leading retailer of crop supplies. On Nov. 5, the company said earnings soared more than seven-fold on strong global demand for meat and dairy products, which increased the cost of animal feed and, subsequently, feedstock prices.
Despite its staggering third-quarter results, Agrium was at the time cautious regarding its outlook for the remainder of 2008, citing falling commodity prices amid a global credit crunch that could force growers to delay supply spending until conditions improve. Agrium, however, said industry fundamentals wouldn’t be strongly affected by recessionary pressures since consumers will never stop buying food and the world’s supplies are in short supply.
Chief Financial Officer Bruce Waterman told Reuters on Nov. 5 that Agrium recently reduced its debt and has expanded credit lines. Waterman said the company is well-positioned to take advantage of acquisitions and other opportunities.
Agribusiness stocks continued to lag. Agrium, Potash Corp. of Saskatchewan, Mosaic, and CF Industries Holdings all closed lower on Nov. 5. Shares of seed companies Syngenta AG and Monsanto haven’t fared much better despite a recent crop report from USDA that said the year’s corn and soybean harvests would be smaller than originally forecast.
Farm equipment companies are likely to be the most affected by tightened credit markets, since growers can delay machinery purchases without sacrificing much crop yield, unlike fertilizer investments.