|By Marketwire .||
|January 8, 2013 09:35 AM EST||
NEW YORK, NY -- (Marketwire) -- 01/08/13 -- The agricultural chemicals industry, which includes companies such as The Mosaic Company (NYSE: MOS) and Potash Corp. of Saskatchewan Inc. (NYSE: POT), is off to a great start in 2013. Domestic demand has been robust, and for those with international operations, Asian and South American markets have also been performing well. An ever-increasing global population as well as dietary changes in emerging markets such as China and India has put a greater amount of strain on the global food supply which also works in favor of the agricultural chemicals industry. Furthermore, strong quarterly earnings reports from several key players have led to increased investor interest of late, which also bodes well for the industry. While there are a number of factors working in favor of the industry, lower phosphate prices have put a dent in sales for select companies.
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On the earnings side of things, Mosaic Co. impressed investors recently. Mosaic announced that its second-quarter fiscal 2013 net earnings came in at $629 million as compared to $624 million during the same period last year. President and CEO Jim Prokopanko stated that the company has been seeing strong demand levels from North and South America. While net earnings for the quarter increased, sales slid to $2.5 billion, down from $3.0 billion a year ago. The decrease in sales was in part due to a decrease in phosphate prices as well as a decline in potash and phosphate volumes. While some companies have been reporting reduced top-lines, the supply and demand equation looks to be favoring agricultural chemical companies this year, which could help to propel earnings even higher moving forward. Mosaic has also been busy on the expansion front of late. Expenditures on expansion projects came in at $145 million for the quarter, and included the completion of the Esterhazy K2 expansion, as well as the completion of phase 1 at Belle Plaine.
Oversupply has been an issue for the industry over the last little while, however, a number of new developments could shrink the supply glut for certain products. The growing middle-class populations of India and China are increasing demand out of Asia, and those well positioned to take advantage could see their sales rise in 2013. New supply contracts for the aforementioned countries should also help to drive sales higher. Mosaic and Potash Corp., along with Agrium Inc., have been making headlines for their overseas dealings of late, as their offshore marketing company Canpotex recently reached an agreement with China's Sinofert Holdings Ltd. Under the agreement, Canpotex will provide Sinofert with one million tonnes of potash in the first six months of 2013. The price per tonne is lower than the last contract price set up in March of last year. However, many believe that the deal will improve the pricing environment for potash moving forward. Solid commodity prices are also a positive for the industry, as farmers looking to take advantage of improved margins could increase their agricultural chemical use this year. A finite amount of arable land also bodes well for the industry, as farmers are continuously looking for ways to increase crop yields.
Although the industry has been facing a number of headwinds, such as oversupply and in some cases lower prices, there are many more tailwinds that could send the industry higher. A continued recovery in the United States combined with strong numbers out of Canada and South America augur well for the industry, and if other leading nations such as China also get back into gear, 2013 could be a banner year for the agricultural chemicals industry as well as companies such as The Mosaic Company and Potash Corp.
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