grain prices rallying

http://www.calgaryherald.com/business/Potash+Corp+Agrium+shares+highs+corn+crop+shrivels/6876557/story.html

Potash Corp., Agrium shares hit highs as corn crop shrivels
Smaller corn crop lifts corn, fertilizer prices

Shares of Potash Corporation of Saskatchewan and Agrium Inc, two leading North American producers of the crop nutrient potash, climbed to multi-month highs on Tuesday, as the U.S. corn crop shrivelled in relentless heat.

Hot, dry conditions in the U.S. Midwest, expected to last throughout the week, are reducing corn yield estimates and driving up price. Fertilizer prices are linked to values of corn because farmers tend to apply more nutrients to soil when crop prices are strong.

The U.S. Department of Agriculture (USDA) on Monday slashed its condition rating for U.S. corn to 48 per cent good-to-excellent, down 8 percentage points from a week earlier. It pegged the soybean crop at 45 per cent good-to-excellent, compared with 53 per cent a week ago.

The surprisingly acute damage pushed Chicago benchmark corn futures on Tuesday to a 10-month high.

Potash Corp. shares rose 2.6 per cent in New York to US$45.13 in morning trading, touching a three-month high. Agrium’s stock gained 3.9 per cent in New York to US$92.21, touching an 11-month high.

“Our analysis suggests that if corn and soybean yields drop to last year’s relatively poor levels, global grain stocks-to-use could drop to 66 days, which would be the third-lowest inventory level in the last decade,” National Bank Financial analyst Robert Winslow wrote in a note to clients, describing a key industry measure of supply to demand.

“Under such a scenario, grain prices could, all-else-equal, return to the high levels of mid-2011 when ag equities were driven to recent cyclic peaks.”

Winslow raised his price target for Potash Corp.’s New York stock to US$47.50 from US$35.50 and increased Agrium’s New York target to US$97.50 from US$71. He upgraded both stocks to “sector perform” from “underperform.”

Other fertilizer companies also rose with support from rising corn, a heavy fertilizer user.

Mosaic Co shares gained 1.1 per cent to US$55.49, while CF Industries Holdings Inc gained 2.5 per cent to US$198.18.