Commodities & Metals

Agribusiness Outlook Bright (SYT, MON, MOS, POT, AGU, IPI, CMP, MOO)

Rising prices for food commodities should continue throughout 2011, and the agribusiness sector is set to take advantage of it. The number of US acres planted in corn this year will be higher than all but one in the last 44 years. Swiss-based Syngenta AG (NYSE: SYT) is the world’s largest maker of agricultural chemicals, and its first quarter report points to a rising tide that can lift all boats.

Other fertilizer and seed companies, including Monsanto Co. (NYSE: MON), Mosaic Co. (NYSE: MOS), Potash Corp. of Saskatchewan (NYSE: POT), Agrium Corp. (NYSE: AGU), Intrepid Potash Inc. (NYSE: IPI), and Compass Minerals International Inc. (NYSE: CMP), are generally expected to be among the lifted boats.

Syngenta reported sales for its first quarter of $4.02 billion, with year-over-year growth of 11% in its crop protection segment, to $2.79 billion. The company’s seeds segment grew 20%, to $1.24 billion. Overall, Syngenta’s revenue beat estimates by about $100 million for the quarter. For the full year, analysts expect earnings to total $1.77 billion, which calculates out to EPS of about $3.84.

Monsanto reported first quarter EPS last week of $1.88 on revenue of $4.13 billion, and re-affirmed its full-year guidance for EPS of $2.72-$2.82. Both its actual revenue and its guidance were below analysts’ expectations, causing a share price drop of about -4.5% from which the stock has not yet recovered. With the exception of Syngenta, Monsanto also dragged down all the other stocks as well. Monsanto reports third fiscal quarter results in late June, and is expected to post EPS of $1.12 on revenue of $3.4 billion.

Mosaic reported its fiscal third quarter earnings about two weeks ago, handily beating expectations by posting EPS of $1.21, compared with expectations of $1.08. Revenue totaled $2.2 billion, below estimates of $2.34 billion. The company reports its fourth quarter earnings in July, and is expected to post EPS of $1.38 on revenue of $2.57 billion.

Potash Corp. reports its first quarter earnings on April 28th. The company is expected to post EPS of $0.80 on revenue of $2.02 billion. The company tripled its margins on nitrogen fertilizer in the fourth quarter of 2010, and forecast strong prices through the spring planting season for corn, which requires a lot of nitrogen. The company’s potash fertilizer, though, is its main profit driver and will continue to be so for 2011.

Agrium is scheduled to report first quarter earnings on May 4th. Analysts expect EPS of $0.93 on revenue of $2.3 billion. The company did not provide 2011 guidance other than to note tight supplies of nitrogen, phosphate, and potash fertilizers were likely to give profits a boost in 2011.

Intrepid reports first quarter earnings on May 4th, and is expected to post EPS of $0.32 on sales of $102 million. In a preliminary sales report the company said it produced 230,000-240,000 tons of potash in the quarter and sold it at an average price of $435-$445/ton. That yields a revenue range of about $100-$107 million.

Compass reports first quarter earnings on April 27th, and is expected to post EPS of $1.80 on revenue of $400.3 million. In the fourth quarter the company posted EPS of $1.70, short of estimates of $1.83. Its specialty fertilizer division more than doubled quarterly sales in the fourth quarter of 2010 compared with the same period in 2009. But average sales price per ton fell, clipping margins. Compass expects revenues to be good in 2011, but margins will continue to be a problem.

Syngenta shares are up more than 1% in early trading, to $68.18, after posting a new 52-week high of $68.67 just after the market opened. The Market Vectors Agribusiness ETF (NYSE: MOO) is down fractionally, as are all the other stocks mentioned here except Compass, which is up about 0.05%, to $92.70, within a 52-week range of $68.50-$98.00.

Paul Ausick