Topic: Energy Stocks

How Potash Corp. and Agrium are dealing with volatile fertilizer prices

How Potash Corp. and Agrium are dealing with volatile fertilizer prices

Fertilizer prices remain volatile, but these two producers have bright long-term outlooks. That’s because the growing global population is increasing food demand. Without fertilizer, the world would need 50% more farmland to meet this need.

In the most recent issue of The Successful Investor, we reported on the outlook for two fertilizer stocks we cover regularly.

POTASH CORP. OF SASKATCHEWAN (Toronto symbol POT; operates five potash mines in Saskatchewan and one in New Brunswick that account for 20% of global capacity. The company also makes fertilizers from nitrogen and phosphate.

The company has responded to falling potash prices by slowing production and cutting 18% of its workforce. Potash Corp. expects to pay $70 million in severance costs and related charges (all amounts in U.S. dollars).

In the third quarter of 2013, Potash Corp. sold its potash for $307 U.S. a tonne, down 28.4% from $429 U.S. a year earlier.

To put that figure in context, it earned $356 million, or $0.41 a share, in the latest quarter. That’s down 44.8% from $645 million, or $0.74 a share, a year earlier. Sales fell 29.1%, to $1.5 billion from $2.1 billion.

Potash shares have moved up lately on speculation that Russian potash producer OAO Uralkali may try to revive its marketing joint venture with Belarusian producer Belaruskali.

In July 2013, Uralkali ended this partnership after accusing Belaruskali of selling some of its potash independently. Before the breakup, this alliance accounted for 42% of global potash sales.

The uncertainty prompted big customers, like China, India and Brazil, to delay new purchases, and that has been hurting potash prices.
Potash pays a $1.40 dividend which yields 3.9%.

Commodity stocks: Agrium set to merge advanced technologies business with wholesale fertilizer division

AGRIUM INC. (Toronto symbol AGU; gets two-thirds of its revenue—and a third of its earnings—from its retail stores, which sell seeds, fertilizers and other products to farmers. It also makes nitrogen-based fertilizer.

Agrium’s retail division is shielding it from volatile fertilizer prices. In the third quarter of 2013, overall sales rose 1.3%, to $2.9 billion from $2.8 billion a year ago (all amounts except share price and market cap in U.S. dollars). A 15.0% retail sales gain offset a 23.7% fertilizer sales drop. Earnings per share fell 37.5%, to $0.50 from $0.80, due to unplanned outages at its nitrogen plants.

Agrium recently announced that it would merge its Agrium Advanced Technologies (AAT) business with its wholesale fertilizer division. AAT, which supplies 4% of Agrium’s revenue, makes controlled-release fertilizers for farmers and golf courses. The move should help the company make these products available to more customers.

Like Potash, Agrium has seen its shares rise in response to a potential rise in potash prices thanks to the possible revival of the joint marketing venture between OAO Uralkali and Belaruskali (see above). The company’s $3.00 dividend yields 3.4%.

In the latest edition of The Successful Investor, we look at the earnings forecast and growth prospects for both of these companies in light of the uncertain outlook for fertilizer prices. We conclude with our clear buy-sell-hold advice on these two stocks.

(Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation in the latest issue. Be sure to log in first.)

If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.

COMMENTS PLEASE—Share your investment knowledge and opinions with fellow members

Potash Corp. of Saskatchewan has proved to be one of Canada’s more volatile stocks, with a history of hitting great highs and subsequently dropping sharply. Do you avoid stocks like these? Or are you willing to buy in at a perceived low point in the expectation that another big surge is on the way? Have you had any standout successes with particularly volatile stocks?


Tell Us What YOU Think

You must be logged in to post a comment.

Please be respectful with your comments and help us keep this an area that everyone can enjoy. If you believe a comment is abusive or otherwise violates our Terms of Use, please click here to report it to the administrator.