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Fertilizer stocks spike higher with corn price

The Potash Cory mine near Saskatoon, SK.

Liam Richards/The Globe and Mail

The historically tight relationship between fertilizer stocks and corn prices has seen Agrium Inc. and Potash Corp. of Saskatchewan Inc. spike higher as severe drought conditions persist in North America.

Continued hot, dry, windy conditions in the Canadian Prairies and American Midwest will cripple the corn crop, creating a scarcity that would drive corn and fertilizer stock prices substantially higher.

Most market participants are aware of the increasingly difficult crop conditions in North America, to date the driest in at least 25 years.

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The less well-known symbiosis between the corn price and fertilizer stocks is a function of implied demand. Higher corn prices motivate farmers to increase planting in future seasons, increasing estimates of fertilizer consumption.

Both Potash and Agrium stock has displayed close ties with the commodity price. In Agrium's case, the stock and the Canadian dollar corn price moved in lockstep through the fall of 2011.

News of record corn planting in the spring pushed the corn price lower before the recent spike re-established the relationship.

The trend strongly implies Agrium will follow the commodity price sharply higher if poor conditions continue.

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About the Author
Market Strategist

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW). He was a highly ranked mutual fund analyst for 10 years and then, most recently, the head of a financial adviser support team at MPW. More

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