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Amid the broader stock market declines of the past couple of months, spare a thought for Potash Corp. of Saskatchewan Inc. : The fertilizer producer has seen its shares slump 20 per cent since the middle of February, and they have fallen for six of the past seven trading days.
While concerns about the health of the global economy are partly to blame, the U.S. Senate's vote this week to end three decades of ethanol subsidies also skewered investor sentiment. Corn is a particularly fertilizer-intensive crop, and subsidies have been blamed for driving food prices higher. If corn crops shrink without subsidies, the fear is that the market for fertilizer will also shrink.
However, analysts aren't so sure that the subsidy for ethanol - used as a fuel additive to reduce reliance upon imported oil - will indeed end. Some, including those at Morgan Stanley, Citigroup and TD Newcrest, recommend buying agriculture stocks on the dip. In particular, TD's Paul D'Amico raised his recommendation on Potash Corp. to "buy" from "hold," arguing that investors have overreacted to the ethanol news.
"U.S. Senate ethanol vote looks mostly 'symbolic' rather than indicative of big near-term changes," he said in a note.
"This bill is neither actionable nor required to be taken up by the House. More importantly, the U.S. RFS [Renewable Fuels Standard]mandate is unchanged. The fundamental near-term impact is nil to negligible in our view, but sentiment is likely to be negative as speculative positions in corn potentially decline."
Mr. D'Amico is maintaining a $61 (U.S.) price target.
David Berman