February 22, 2013 / 5:00 PM / in 5 years

UPDATE 1-Agrium plunges nearly 7 pct, fertilizer rivals also lower

* Fertilizer names downgraded despite strong first-half view
    * Agrium Q4 EPS beat estimates, but was lower on adjusted
    * Potash Corp, Mosaic, CF shares also weaker

 (Adds further details, comments from Agrium and Jana)
    By Rod Nickel
    Feb 22 (Reuters) - North American fertilizer stocks fell in
morning trading on Friday, led by Agrium Inc ,
after an influential analyst downgraded the leading names,
saying that market conditions are becoming less favorable for
the big producers.
    Dahlman Rose analyst Charles Neivert cut his rating for
Potash Corp of Saskatchewan, the world's biggest
fertilizer producer, to "sell" from "hold," and dropped Mosaic
Co to "hold" from "buy." Neivert cut Agrium, CF
Industries Holdings Inc and Rentech Nitrogen Partners LP
 to "sell" from "buy."
    Neivert said the most favorable market conditions for
nitrogen, phosphate and potash fertilizers have passed now that
producers are moving ahead with expanding capacity.
    "Although (the first half) looks good, the industry may be
just one crop away from a significant earnings downdraft driven
by crop and capacity issues," he wrote in a note to clients. 
    From 2012 through 2016, capacity is set to grow 18 percent
for urea, a key nitrogen-based fertilizer, 12 percent for
phosphate and 31 percent for potash, Neivert wrote.
    Potash Corp is focused on its namesake nutrient, while
Agrium and CF mainly produce nitrogen. Mosaic is a leading
producer of phosphate.
    Shares of Potash Corp slipped 1.6 percent and 1.2 percent in
New York and Toronto, respectively, while Mosaic fell 2.1
percent and Rentech lost 5.2 percent in New York.
    Agrium fell the most, by 6.6 percent and 6 percent in New
York and Toronto, even though it reported record-high
fourth-quarter profit after normal trading hours on Thursday and
beat analyst expectations for earnings per share. Analyst Robert
Winslow of National Bank Financial noted that on an adjusted
basis, however, Agrium's quarterly profit declined to $2.16 per
share in 2012 from $2.34 a year earlier.
    The large U.S. corn and soybean crops that the U.S.
Department of Agriculture is forecasting could also pressure
grain prices by year-end, which would weigh down fertilizer
values in turn.
    "It may just be that investors are now viewing current
strong senior fertilizer EPS results as being the cyclic top and
that the best is now in the rear-view mirror," Winslow said.
    Calgary, Alberta-based Agrium is the world's third-largest
producer of nitrogen fertilizers and the largest U.S. retail
seller to farmers of crop inputs like seed, fertilizer and
chemicals. It forecast on Thursday higher global demand for
nitrogen and potash, which it also produces, with tight crop
supplies leading into spring planting season giving farmers
ample reason to maximize crop production.
    "The world's unrelenting demand for reliable food supplies
has made the need to maximize grain production in 2013 even more
critical as grain inventories have struggled to keep pace with
the needs of a growing global population," CEO Mike Wilson said
on a conference call.
    Expectations for fertilizer companies such as Agrium and CF
have been high as of late, with Agrium's shares hitting an
all-time high on Jan. 28. On Friday, Agrium's U.S.-listed stock
fell as low as $99.28, its lowest price of 2013 so far.
    As with Agrium, CF Industries posted a record-high
fourth-quarter profit on Tuesday, but shares fell on thoughts
that the year ahead may not be quite as profitable.
 CF's shares dipped a further 1.5 percent on
    Agrium is facing a proxy battle with its largest
shareholder, Jana Partners, which wants Agrium to split its
retail and wholesale divisions and make other changes to improve
shareholder returns and operations.
    "Shareholders are continuing to suffer from Agrium's
entrenchment discount," said a Jana spokesman, referring to the
company's refusal to make some of the changes the hedge fund
wants. "The market has rendered its verdict."
    Wilson, Agrium's CEO, said Jana's arguments for change are
flawed and defended the company's decision to move its annual
meeting up about a month to April 9.
    "We've been talking with them for 10 months. Let's get this
thing over with," he said.
    Equity markets were generally higher in morning trading. 

 (Reporting by Rod Nickel in Winnipeg, Manitoba; editing by
Sofina Mirza-Reid and Phil Berlowitz)

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