Agricultural stocks could outperform the broad Canadian market in coming weeks as bearish crop forecasts and low grain inventories keep prices at record highs and spur increased fertilizer demand.
Even with strong grain prices and a surge in crop nutrient prices, shares of Potash Corp., Agrium Inc. and Viterra have had a dismal run over the last six months, largely due to an uncertain global economic outlook. On average, the shares have fallen about eight per cent in the period.
Farm economies are still in an optimal position, said Morningstar analyst Min Tang-Varner. At the end of the day, the fertilizer stocks have their own inherent cyclicalities that are not fully correlated to the North American economy, so they should still have space to run.
The bullish grain price outlook is sure to encourage most farmers to invest more in fertilizers, seeds and other inputs.
While fertilizer prices have risen this year, farmers are not suffering from the kind of sticker shock that led them to pullout of the market during the 2008 peak.
Agrium is the largest North American ag products retailer, and also one of the region s largest producers of nitrogen-based fertilizers that are essential for growing corn. Its stock is down about seven per cent in the last six months, while shares of U.S. rival CF Industries have jumped. Many analysts now expect Agrium s stock to play catch-up in coming months.
Another company that stands to benefit is Viterra. The grain handler and farm products seller recently reported a huge jump in profit and forecast strong results.
I don t see anything wrong, I think this is the rally that no one s talked about as much as they should have, said Chris Damas, an independent analyst and investor who owns shares in both CF and Agrium.