Farm incomes are expected to climb to an all-time high this year, the U.S. Department of Agriculture predicts.
The expected increase - to a net farm income total of $128.3 billion, up from $112.8 billion in 2012 -
is good news not only for farmers but also for the fertilizer companies, making a few of them good stocks to buy now.
That's because the higher incomes will mean farmers invest more in their farms by expanding production to take advantage of higher prices they receive for grains.
And crop prices are expected to remain high enough this year to support increased fertilizer purchases by North American farmers. The United Nations Food and Agriculture Organization stated in January that food prices would stay at elevated levels due to tight grain stocks globally.
Its senior economist, Abdolreza Abbassian, told Reuters, "Prices are high and will remain high in 2013/2014."
Why to Be Bullish on these Ag Stocks
Given farmers' expected windfall from higher farm incomes, fertilizer companies have a bullish outlook for 2013.
U.S.-based nitrogen and phosphate company CF Industries (NYSE: CF) said limited supplies of corn, wheat and soybeans "underpin our expectations of high crop prices."
CF Industries is the second-biggest nitrogen fertilizer producer in the world and the third-largest publicly listed phosphate producer. In 2010, it acquired Terra Industries to beef up its global position in nitrogen.
Its chairman and CEO, Stephen Wilson, told Agrimoney, "Agricultural market conditions are as attractive today as at any time in recent history, and give us confidence in the demand outlook for our products."
Wilson believes prices will stay high enough to support farmers' incomes, but not high enough to stifle demand - a "Goldilocks" market.
"CF Industries projects that US farmers will plant 97m acres of corn in 2013 with a forecasted yield of 160 bushels per acre, compared to actual 2012 of 97m acres and a yield of 123 bushels per acre," CF said last month, restating an area forecast made in November. "These factors should lead to corn prices that sustain demand while still allowing farmers to earn attractive returns."
Another fertilizer company sounding a positive note is the Canada-based Agrium (NYSE: AGU), formerly known as Cominco Fertilizers.
The company's wholesale and retail divisions supply crop products and crop nutrients such as dry and liquid nitrogen, phosphate and potash. Its advanced technologies segment sells fertilizer products, including controlled-release crop-nutrient technologies.
Agrium pointed to increased corn sowings, thanks to higher prices, and said that would lead to increased fertilizer sales.
The company told Agrimoney "historically high crop prices and production margins" are providing a "historically strong incentive to maximize crop production."
Market conditions should also contribute to a rebound in the phosphate market, which remains weak, although the fourth quarter was decent.
CF said North American demand for ammonia and phosphates was strong with "brisk" autumn applications of the fertilizers. The company expects demand to increase even more as spring planting begins.
North American producers in the nitrogen space should also be helped by decreased competition from overseas imports. Strong demand from European farmers and areas including the Ukraine has benefitted North American producers.
That's because that demand means shipments of nitrogen-based fertilizer from producers such as the world's biggest nitrogen fertilizer firm, Norway's Yara International (YARIY), have gone into those markets instead of being exported to the U.S.
For more ways to profit from higher food prices, check out this story on ag stocks to buy in 2013.
Related Articles and News:
- Money Morning:
The Best Ways to Profit from Food Inflation
- U.S. Department of Agriculture:
Farm Income Forecast to Remain High in 2013
CF Unveils Hopes for 'Goldilocks' Corn Market
Agrium Flags US Corn Boost to Nutrient Groups
Food Prices to Stay High in 2013, Low Stocks Pose Risk-FAO