Ag, Fertilizer Stocks Could Be Headed for a Stall (POT, BG, ADM, MON, MOS, MOO)

Fertilizer maker Potash Corp. of Saskatchewan, Inc. (NYSE: POT) reported third-quarter earnings this morning that were more than double earnings for the same period a year ago. But in this case, a hit may be as good as a miss. Analysts expected EPS of $0.94 on revenue of $2.17 billion. Potash Corp. delivered diluted EPS of $0.94 on revenue of $2.32 billion. Gross margin rose from 35% in the same period last year to 49% this year. The company also noted that its EPS outlook for the full fiscal year is $3.40-$3.80. The consensus estimate is $3.75. In other words, no upside surprises from Potash Corp.

At the other end of the food chain, food processor Bunge Ltd. (NYSE: BG) reported third-quarter adjusted EPS of $0.86 on revenue of $15.62 billion. The consensus estimates called for EPS of $1.62 on revenue of $14.32. Only Bunge’s fertilizer operations posted a quarterly gain over the same period last year, and that a scant $9 million. The company’s outlook did not include any specific forecasts for EPS or revenue, but Bunge does expect to fall short of its original estimate of sugar refining and sees continuing pressure on oilseed prices. The company expects its fertilizer business to improve, but that is historically its smallest revenue producer.

Ag company Archer Daniels Midland Co. (NYSE: ADM) reports earnings next Tuesday, and the consensus estimates are looking for EPS of $0.67 on $18.93 billion in revenue. The company posted EPS of $1.01 in the second quarter, and the estimate has fallen by 13% over the past three months.

Fertilizer makers Monsanto Co. (NYSE: MON) and Mosaic Co. (NYSE: MOS) recently reported earnings for the first quarter of their 2012 fiscal years, and the results were not particularly thrilling. Monsanto posted an EPS loss of -$0.22, though that was better than an expected loss of -$0.27. For the current quarter Monsanto is expected to post EPS of $0.12. Mosaic posted EPS of $1.17 in its quarter ended in August and analysts are expecting EPS of $1.39 for the current quarter. In its quarter ending in August 2010, Mosaic posted EPS of $1.85.

All the fertilizer makers expect to see a price hike for their products both in the current quarter and next year. The reasoning is that the global economic slowdown notwithstanding, people want and need to eat. Rising economic conditions in the developing world, especially in China and India, support food prices and because it is cheaper to increase yields by applying fertilizer than it is to bring new land into food production, the companies foresee continuing growth.

Potash Corp. noted in its earnings release that shipments of potash to China and India are set for the fourth quarter and the company expects volumes to increase and prices to rise beginning in the first quarter of 2012. Potash Corp. said that contract potash prices to India will rise by $60/metric ton beginning in January.

While the general trend of the news is positive, volatility in the food and fertilizer markets seems to have been discounted in the outlooks for the coming year. The other big problem is the unreliability of information from China regarding stockpiles and demand. One trader has said that 80% of the information out of China is misleading, and that finding the 10%-20% that is accurate and useful is more difficult than it should be. That means that counting on China for growth can be risky, at best.

Shares in Potash Corp. are trading up about 2.4% in the pre-market this morning, at $50.70, in a 52-week range of $39.54-$63.97. Bunge stock is trading up less than 1%, at $60.00, in a 52-week range of $54.03-$76.12. The Market Vectors Agribusiness ETF (NYSE: MOO) is up about 1.67%, at $50.55, in a 52-week range of $39.86-$57.93.

Paul Ausick