Goldman Sachs downgrades Potash Corp and Monsanto

Mon Dec 22, 2008 9:56am EST
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(Reuters) - Goldman Sachs downgraded agricultural products maker Monsanto Co (MON.N: Quote) and Potash Corp of Saskatchewan (POT.N: Quote) (POT.TO: Quote), saying it expects a smaller crop in 2009 as falling grain prices delay planting decisions.

"The dramatic rise and fall of commodity prices, credit concerns and fertilizer costs have partially paralyzed fall buying activity," analyst Robert Koort wrote in a note in which he cut the companies to "neutral" from "buy."

In a typical year, 40 percent of annual fertilizer application occurs in the fall, but this year the rate could be half that level, he said.

With the decline in crop prices and the financial crisis, farmers are reducing their fertilizer usage, shifting their focus to cost savings rather than profit or yield maximization, Koort said.

This time, farmers have not decided which crop to plant as net margins are slightly higher in corn but the return on investment is higher for soybeans due to their lower seed and fertilizer costs, the analyst said.

"Food demand is generally considered recession-resistant, but not quite recession-proof," the analyst wrote.

The analyst cut his six-month price target on the stock of Mosanto to $80 from $93, but raised that on Potash Corp shares to $73 from $60.

In a separate note to clients, BMO Capital Markets cut its price target on Potash Corp to $115 from $145 on lower fertilizer demand. However, it maintained its "outperform" rating on the company saying it could weather the crisis.

On December 18, the company had cut its full-year earnings outlook by 10 percent citing weak fourth-quarter sales and the global economic crisis.   Continued...