pot corp predicts boom era for fert groups

"Fresh momentum is igniting the agricultural sector ... We see parallels to the demand-driven environment that led our company to five consecutive years of record performance prior to 2009"

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PotashCorp predicts boom era for fertilizer groups
22:50 UK, 28th October 2010, by Agrimoney.com

PotashCorp heralded a return of the fertilizer industry to the boom conditions which brought the potash giant a string of record results as it unveiled forecast-beating profits, and said earnings could grow by at least one-third next year.

The world's biggest fertilizer group, which is fighting a hostile takeover from mining giant BHP Billiton, said that the sector had "passed an important inflection point", and was "returning to a period of powerful growth".

"We see parallels to the demand-driven environment that led our company to five consecutive years of record performance prior to 2009."

The bullish forecast came as the company revealed a 62% jump to $402.7m in earnings for the July-to-September period, more than analysts had expected, and lifted its forecast for full-year earnings to $5.75-6.00 per share, from $5.00-5.50 a share.

And, given the price rises being pushed through, it forecast further gains next year, to $8.00-8.75 a share, a figure which, while short of the record set in 2008, implies earnings up to 10% higher than analysts have pencilled in.

Farm sector 'igniting'

Quarterly results were lifted by an 87% jump in sales of potash, by volume, underpinned by near-record demand in North America and "aggressive" purchases in Latin America as farmers sought to maximise yields and capitalise on higher crop prices.

"Fresh momentum is igniting the agricultural sector," the group said.

While some wholesalers were attempting to rebuild inventories depleted since 2008, when lower crop prices sent fertilizer demand tumbling, "limited product availability has meant that most shipments are heading straight to farmers' fields".

Indeed, the need to rebuild inventories meant potash shipments would prove "strong" next year, besides helping higher prices stick.

Potash price rises of $50 a short ton were unveiled last month, to be followed by an increase of a further $75 per short ton once previous bookings are fulfilled, probably early next year.

"The potential exists for additional price increases, resulting from strong demand continuing to pressure supply," the group added.

Deal doubts

The results were well received by analysts, with Mackie Research Capital analyst John Chu saying they may be sufficient to force BHP to raise its $39bn offer.

"As the stellar results are reflective of a strong demand for fertilizers going forward, especially for potash, BHP will likely have to improve its bid," Mr Chu said, adding that he was likely to revise his share price and earnings forecasts for PotashCorp.

However, the stock lost 3.8% to finish at Can$146.00 in Toronto on fears that BHP may be barred from a deal by Canada's government.

"I think we're going to get screwed," a source close to BHP told Canada's Globe and Mail newspaper. An official spokesman for the mining group said it had confidence in winning takeover consent.

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