* Cites improving outlook, stronger grain prices
* Shares of Potash Corp, Mosaic and Agrium up (In U.S. dollars, unless noted)
TORONTO, May 22 (Reuters) - Citigroup raised its ratings on fertilizer producers Potash Corp of Saskatchewan POT.TO, Agrium Inc AGU.TO and Mosaic Co (MOS.N) on Friday, citing an improving outlook based on stronger grain prices.
Citigroup raised its rating on Canada’s Potash Corp and its U.S. peer Mosaic Co to “buy” from “hold,” while it raised its rating on Canada’s Agrium to “hold” from “sell”.
The firm also raised its price targets on shares of all three companies. Potash Corp’s target price has been raised to $145 from $83; Mosaic’s to $72 from $48; and Agrium’s to $55 from $36.
“We are upgrading fertilizer producers based on tightening grain supplies, the late wet U.S. planting season, and the broader market stabilization and easing of deflation concerns,” said Citigroup analyst P.J. Juvekar in a note to clients.
Wet cold weather has significantly delayed much of the U.S. corn crop and latest data indicates that corn plantings are 62 percent complete, well behind the 85 percent average rate seen between 2004 and 2008, Juvekar said.
“In our view grain prices don’t have a ‘cushion’ — another major weather event or poor crop for a major producer could move corn prices closer to the $5.00+ range we saw last summer,” he said.
Potash Corp’s shares rose 3 percent to $112.87 in early trade on the New York Stock Exchange; Mosaic’s shares rose 4.5 percent to $55.74 and those of Agrium rose 4 percent to $50.80.
Despite weak first-quarter results, shares of all three companies have risen more than 50 percent year-to-date, as investors are betting on an improvement in grain prices and farm economics in 2010 and beyond.
“While the share prices have rallied from the bottom, our analysis of fertilizer producer multiples in periods of high corn prices indicates there is still further upside,” Juvekar said.
$1=$1.12 Canadian Reporting by Euan Rocha; editing by Peter Galloway