December 22, 2008 / 2:00 PM / 12 years ago

Goldman Sachs downgrades Potash Corp and Monsanto

(Reuters) - Goldman Sachs downgraded agricultural products maker Monsanto Co MON.N and Potash Corp of Saskatchewan POT.N POT.TO, 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.

Fertilizer demand has also been soft in other parts of the world and, coupled with the lackluster US demand, this has prompted widespread shutdowns and curtailments in the fertilizer space, the Goldman Sachs analyst said.

However, despite the slowdown, Potash Corp’s said its fourth-quarter earnings are expected to be its third-highest in history due to significantly higher gross margins.

Shares of Monsanto dropped as much as 7 percent and were trading at $66.95, while Potash Corp shares fell over 3 percent to trade at $70.00 Monday morning on the New York Stock Exchange.

Following are the six-month price target changes Goldman Sachs has made on other agricultural products makers:


Current Prior

Mosaic (MOS.N) $37 $30

Agrium AGU.N AGU.TO $33 $28

CF Industries (CF.N) $44 $49

Intrepid Potash (IPI.N) $19 $17

Terra Industries TRA.N $14 $14

Reporting by Antonita Madonna Devotta in Bangalore; Editing by Jarshad Kakkrakandy

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