Fertilizer makers bank on U.S. recovery from drought
CF Industries is hoping for rain to soften up the parched ground enough to allow farmers to easily apply ammonia nitrogen this autumn, Wilson said. But he sees farmers eventually coming around.
"If for reasons of weather we have a little less movement in the fall, we'll make up for it with ammonia or other nitrogen products in the spring."
But industry analyst David Asbridge, president of NPK Fertilizer Advisory Services, said the companies are too optimistic, because farmers simply won't need to add as much nutrients to the soil as in other years.
He expects U.S. crop usage of potash and phosphate to dip 5-7 percent in 2013, while nitrogen demand eases 1 percent.
"Traditional theory is high corn prices mean more corn acreage, which means more fertilizer demand, which means higher fertilizer prices. I think this is going to be a year where we see that theory is shot," Asbridge said in an interview.
Analyst Robert Winslow, who covers Potash Corp and Agrium Inc for National Bank Financial, sees the drought as positive for fertilizer companies for the next two to three quarters, thanks to high grain prices stimulating sowing of a robust global grain acreage.
But record-high grain prices are likely unsustainable.
"The risk now is to the downside for the (fertilizer) stocks," Winslow said.
What can't be forgotten is that U.S. farmers' bottom line remains attractive, with insurance protecting many drought-affected growers and high grain prices boosting income for others said Mike Wilson, chief executive of Agrium.
The Calgary, Alberta-based company produces potash, nitrogen and phosphate, and also owns the biggest U.S. farm retail supply network.
"The grower is doing very well, cash-wise," Wilson said. "When the grower's making this kind of money ... you want to maximize yields and that's when they come to us."