Fertilizer consumption in the United States is unlikely to decline after the current drought in the Midwest, Citi Investment Research said, upgrading Mosaic Co to ‘buy’.
Citi also raised its target price on shares of fellow fertilizer producers CF Industries (CF.N) and Agrium Inc.
“We think investors are over- estimating the potential for demand destruction in North America due to the ongoing Midwest drought,” analyst P.J. Juvekar wrote in a note.
Severe heat blanketed much of the US Midwest in late July, exacerbating the region’s worst drought in more than 50 years and devastating corn, soya and other vital crops.
The drought is the worst since 1956, the National Oceanic and Atmospheric Administration said in a report posted on its website.
Mosaic recently said the drought would not likely dent fertilizer sales, as the drop in agricultural production this year will force farmers to plant more next year.
Analyst Juvekar said that fertilizer demand on average went up following the two recent drought years in 1983 and 1988. “Total North American phosphate consumption grew about 8% and potash about 2% on average in the
year following these droughts,” Juvekar said. Juvekar is rated four stars for the accuracy of his earnings
estimates on Mosaic, according to Thomson Reuters StarMine.
The company could also launch a major share buyback programme once the restrictions from the Cargill CARG.UL split-off are lifted in 2013, Juvekar said. US agribusiness and trading firm Cargill sold its stake in Mosaic in 2011.