Potash, Ag, and Fertilizer... Cool Again, No Stink (POT, CF, TRA, AGU, MOO)

How many quarters have we had to hear from fertilizer and potash companies that the earnings results will be disappointing but good news is closer rather than farther away?  This has been the trend for about 9 months or so.  But now things may finally be changing for the sector.  Potash Corp. of Saskatchewan, Inc. (NYSE: POT) last night raised its guidance.  We have also seen CF Industries (NYSE: CF) and Terra Industries (NYSE: TRA) confirm a $4.7 billion merger.

Finally.  Fundamentals are catching up with share prices.

Potash Corp. said that earnings are now expected to be $1.30 to $1.50 EPS versus a prior guidance of $0.70 to $1.00 EPS which was provided on January 28, 2010. The reason for the higher guidance  was noted as being “a sharp rebound in potash demand that is expected to drive a record quarter for North American sales volumes and strong offshore shipments, as well as higher-than-expected margins in nitrogen and phosphate.”  Also noted was, “Strong farmer returns, a depleted distributor pipeline and the agronomic need to replace soil nutrients have kick-started a potash rebound from 2009 lows.”

CF Industries (NYSE: CF) has confirmed that it and Terra Industries (NYSE: TRA) have entered into a definitive merger agreement. Terra holders will receive $37.15 in cash and 0.0953 of a share of CF Industries common stock.  The boards of directors of both companies have approved the $4.7 billion combination, and Yara of Norway has backed away from its prior offer.

CF and Terra expect annual cost synergies of up to $135 million, mostly from the elimination of overlapping corporate functions, transport and distribution savings, and from greater economies of scale.

This merger also takes Agrium Inc. (NYSE: AGU) out of the CF offer process.  Interestingly enough, Agrium shares are up over 6% at $71.06 today.  With a market cap north of $11 billion, maybe Agrium will look elsewhere.

Potash Corp shares are up 6.2% at $124.17, which is up over 25% from the post-earnings initial reaction in January.

We always look for an ETF transaction as well in a sector.  The Market Vectors Agribusiness ETF (NYSE: MOO) is up 1.7% at $45.43 this morning.

There is one notion here that needs to be addressed.  The market fundamentals have finally caught up.  It seems that we have for quarters endured poor earnings and lower guidance.  Yet Potash Corp. shares have a 52-week low of less than $75.00.  So we have seen a greater than 66% rise and today was the first bit of god news actually coming from the company rather than from outside sources.

It won’t be surprising at all if we start to see at least some profit taking.

JON C. OGG