U. S. fertilizer producer Mosaic Co. expects a solid farm economy in 2009 and does not see next year’s crop plantings being hurt by the effects of the credit freeze, its chief executive said in an interview.
“To say ‘No, there are going to be no implications (on the farm economy from the credit crunch),’ that would be careless and whistling past the graveyard. But we see the farm economy as solid and our reports are that banks are still lending to farmers,” said CEO Jim Prokopanko.
Prokopanko spoke to Reuters late Oct. 1 after the company reported fiscal first-quarter results that missed Wall Street’s expectations and warned it would lower phosphate production due to excess phosphate inventories in global markets.
Shares of the fertilizer producer tumbled more than 40 per cent Oct. 2. Mosaic’s earnings miss, coupled with analysts’ downgrades of other agribusiness companies, pummelled shares of farm equipment makers, seed producers, grain processors and other fertilizer companies.
Prokopanko said the results met his expectations and the company remained confident that the fundamentals in the agricultural sector remained strong.
“We’ve looked at historic data going back 40-plus years. There are only three or four years, where we’ve seen grain and oilseed consumption reduced year over year,” said Prokopanko.
“We see that growth could possibly slow, but we just don’t see grain and oilseed consumption going backward.”
The agricultural sector sell-off comes amid worries that the credit crisis that has swept through financial markets could hamper farmers’ ability to get cash for seeding next year.
“There are issues over tighter credit in both the U. S. and Brazil that could force farmers to cut back on spending and reduce fertilizer usage,” said Goldman Sachs analyst Edlain Rodriguez in a note to clients.
Investors fear farmers will pull back on spending because of lower grain prices and higher costs in fertilizers, seeds, equipment and fuels.
The collapse in valuations of fertilizer stocks does present an opportunity for acquisitions in the sector, he said, adding that the company is keen to expand its potash and phosphate reserves.
“Yes, we’d like to pick something up, but I don’t think anyone is going to give it away.”