Globe and Mail Update
Bumper crop projected in U.S., China, puts pressure on demand
The potash market won't recover until 2011, CIBC World Markets warned on Tuesday as it cut its price target on
"We continue to see pressure on potash demand given the bumper crop being projected in the U.S. and China," analyst Jacob Bout wrote in a morning note to clients. "Grain pricing and weather will be the key determinants of potash demand but there has been no strong relationship between the lack of potash application and 2009 crop production."
Analysts have been suggesting that demand would return in 2010, because farmers can skip a year and still get strong yields from their fields. But with a bumper crop this year, Mr. Bout said they may be inclined to go another season without the nutrient. Prices have come down from about $1,000 (U.S.) a tonne last year to closer to $650 this year.
He left his price target and rating unchanged for
For Potash Corp., he lowered his target by $10 to $110, while leaving his "sector outperform" rating in place. He said the possibility of a takeover should help the company's shares retain their value.
"Potash's valuation should benefit from a takeover premium with diversified mining and various entities looking to enter the potash industry," he said. "Potash is the crown jewel of the industry due to its collection of potash assets in a politically stable environment."
