October 25, 2010 / 5:06 PM / in 7 years

PREVIEW-PotashCorp, Agrium seen posting strong results

* Surging grain prices expected to boost fertilizer use

* PotashCorp results seen overshadowed by BHP takeover bid

* Bullish forecasts expected from PotashCorp and Agrium (All figures in U.S. dollars, unless noted)

By Euan Rocha

TORONTO, Oct 25 (Reuters) - Canada’s two big fertilizer companies, Potash Corp (POT.TO) and Agrium Inc (AGU.TO), are expected to report strong quarterly earnings driven largely by big gains in the price of nitrogen and phosphate-based products.

Surging grain prices and an early harvest across North America have given farmers a wider window for fertilizer application this fall. That provides an incentive to boost fertilizer spending ahead of the spring planting season.

Gleacher & Co analyst Edlain Rodriguez expects both companies to issue bullish outlooks, given the strong fundamentals in the agricultural sector.

“A lot of the price increases we’ve seen will not get captured until the next quarter,” said Rodriguez. “The third quarter will be solid for both companies, but the fourth quarter and coming first quarter will be much better.”

That said, Potash Corp’s results and outlook are likely to be largely drowned by comments related to its ongoing battle with BHP Billiton (BHP.AX)(BLT.L), the world’s largest mining company.

The Anglo-Australian miner launched a $39 billion hostile bid for Potash Corp in August. The world’s largest fertilizer maker has flatly rejected the $130-a-share offer, as “grossly inadequate” and sued BHP in an attempt to stymie a takeover.

Analysts expect Potash Corp’s Chief Executive Bill Doyle to use the company’s earnings conference call this Thursday, to talk about the bid. Doyle, a consummate salesman, has tried to convince investors that the BHP offer is a “non-starter.”

“I‘m sure he’ll say something to the effect that the bid doesn’t reflect the value of the company long term, and it certainly doesn’t reflect the impact of better economics in the short term -- and I think that is perfectly valid,” said Soleil Securities analyst Mark Gulley. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Fertilizer and corn prices: link.reuters.com/nac28p

For BHP-Potash Corp stories [ID:nN22340110] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

GRAIN PRICES SPIKE

Over the last three months, shares of the top-tier North American fertilizer companies have risen between 35 percent and 45 percent. Even though BHP’s bid for Potash Corp initially helped boost valuations within the sector, surging grain prices have driven the momentum since then.

Morgan Stanley analyst Vincent Andrews contends that this year’s spike in grain prices is much more sustainable than the one that occurred back in early 2008.

“We do not believe that either fertilizer EPS estimates, or valuations have gotten ahead of fundamentals, but rather are still in the ”catch-up“ part of the cycle,” said Andrews in a note to clients.

The price of wheat has risen more than 45 percent since July, as Russia -- one of the world’s top producers -- banned exports of the cereal for the first time in 11 years, after its worst drought in a century.

The price of corn, which rose in tandem with that of wheat, received a further boost this month, after the U.S. Department of Agriculture cut its estimate of this season’s corn crop. Since July, the price of corn on the Chicago Board of Trade has risen by more than 60 percent at about $5.70 a bushel. [ID:nN12206301]

Similarly, the price of sugar, soybean, coffee, rice and other crops have risen sharply since the middle of this year, leading analysts to conclude that farmers across the globe, are well positioned to boost their fertilizer spend in the next growing season.

In addition to being a big fertilizer maker, Agrium is also the largest North American farm products retailer, and the company is well positioned to top expectations. It reports quarterly results on Nov. 3.

“Retail should do well for Agrium. If anything, you might not see the bulk of it in the quarter they are going to report. But next quarter, as demand starts picking up for the fall application, that’s when you are going to see the big boost,” said Rodriguez. ($1= 1.02 Canadian)

Reporting by Euan Rocha

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