February 9, 2011

 

US corn growers reap more profits from land

 

 

US corn farmers will be bringing in profits of more than US$200 an acre in a second successive year, establishing fertile ground for shares in fertiliser groups, according to Credit Suisse bank.

 

The bank, in a note foreseeing "limited downside risk" to shares in fertilizer groups, pegged corn farmers out-earning peers in soy and wheat this year, with a profit of more than US$205 an acre.

 

The estimate - which comes as US growers are weighing up options for spring sowings, a process widely expected to favour increased corn area would put profits in line with last year's US$206.70 per acre, a figure huge by historical estimates.

 

In 2008, the best year of the last rally in grain prices, profits reached US$101.10 an acre, with corn famers suffering at least nine years in the red in a losing streak which ended in 2006.

 

Corn growers' losses from 1997 to 2005 totalled US$678 million on Credit Suisse estimates, which for this year factor in December futures prices.

 

Estimates based off prices of December 2011 futures for grains and November 2011 futures for soy.

 

Prices of potash, for instance, are still 45% behind average levels for 2008, while those for soy are 16% ahead, and for corn up 20%.

 

However, with phosphate prices back on their way above US$500 a tonne this year, and potash hitting that level in 2012, including freight, on Credit Suisse estimates, the "bullish price environment should support" sector shares.

 

The bank lifted its price target on shares in Russia's Uralkali from US$40 per depositary receipt to US$46, and on stock in Israel Chemicals to ILS68.40 (US$18.71) from ILS54.50 (US$14.91).

 

For Uralkali, which revealed on Monday (Feb 7) it had received investor approval for a merger with domestic peer Silvinit, the upgrade represented a second boost, after UralSib analysts upgraded its target price on the depositary receipts to US$50 from US$42, also citing higher potash prices.

 

"Uralkali's position is strengthened by its being one of the lowest cost potash producers globally," UralSib analyst Anna Kupriyanova said.

 

However, the brokers differed on prospects for Acron, the Russian nitrogen group, which Credit Suisse downgraded to "neutral" from "outperform", citing the higher prices the group looked set to pay for potash.

 

Ms Kupriyanova lifted her rating on Acros shares to "buy" from "hold", citing the group's 8.1% stake in Silvinit, which had been made more liquid by the Uralkali deal, and, if sold, could provide funds to launch its own potash projects.