The ongoing drought and severe heat conditions in the Midwest belt have deteriorated the already suffering corn production. According to the recently released weekly crop progress report by the United States Department of Agriculture (USDA), the supply of corn, which is in good to excellent condition, has further dropped to 48% from 56% in one week. Even last week, the USDA reduced its rating of good to excellent corn to 56% from 63%. As a result, corn prices have escalated by as much as 30% in the last month, and Chicago corn futures have surged to 10-month highs this week.
Fertilizer stocks gained as a result of this positive catalyst. CF Industries Holdings (CF) gained by 3%, Potash Corp (POT) by 2.5%, and The Mosaic Co. (MOS) by 1.4%. We maintain our bullish outlook for the Fertilizer Industry in the short-term amidst declining yields and rising prices of corn. However, in the long-term, surplus capacity is expected for nitrogen and potash fertilizers, and the rate of supply growth is expected to increase the rate of demand growth.
One bushel of grain corn requires 1.4 lbs. of potash, 1.25 lbs. of nitrogen, and 0.6 lbs. of phosphate. So, a reduction in corn crop yields will impact those fertilizers' firms significantly, who have higher potash and nitrogen exposure. . .View Full Article