Food Prices climbing up again.

• First sign of inflation already showing especially in food prices confirmed by the last PPI reading and here’s just a historical graphical representation from the economist.
• I only hold AGU and IPI.  POT is interesting but valuation is more expensive because its the most popular Ag stock out there.

Source: Economist

Land prices drop sharply in Center of US farm belt

• Land Prices in the US farm belt showed the steepest quarterly decline in 24 years.
• Value of good agriculture land in the district on April 1 was 6% lower than it was on Jan. 1. 
• Any drop in land prices has negative effect on the agriculture sector because real estate is the largest source of collateral for farmers; their borrowing power is dropping along with the value of their land.
• YoY price of farmland in April 1 was 2% higher than 2008
• Many farmers have less to spend on land because farm incomes are forecast to sink 20% this year.

This will be a key developing story to watch out for in the months to come as it may have a damaging impact  in declaring Agriculture as the green shoot for the future. 

Source: WSJ

Deere (DE) Q2 Profit sinks

Not that I own Deere shares, but I am documenting the company’s earnings report as it pertains to be holdings in agriculture industry and Deere is a key player in supplying the equipments.

• Deere posted a steep decline in Q2 profits across all of its business segments due to weak construction activity and consumer spending, in the middle of this economic meltdown.
• Q2 net income dipped 38% to $472.3 million from $763 million in the year-ago quarter. On a per share basis, earnings totaled $1.11, down from last year’s $1.74. 
• Total net sales and revenue for Q2 dropped 17% to $6.75 billion from $8.09 billion reported a year earlier. Analyst Estimates were at $6.60 billion.

"We are benefiting from a strong market for large farm machinery in the United States and from our continued focus on balancing production with retail activity.” – Robert Lane (CEO Deere)

Breakdown of sales

• New sales of worldwide equipment operations amounted to $6.19 billion, down 17% from $7.47 billion compared to Q1 2008. Sales for the quarter included price increases of 6% offset by an unfavorable currency-translation effect of 6%. Equipment net sales in the United States and Canada decreased 8%, and net sales outside the United States and Canada declined 30%.
• Agricultural equipment sales during the latest quarter descended 4% to $4.49 billion from $4.70 billion last year, largely due to the unfavorable effects of currency translation and lower shipment volumes, partially offset by improved price realization. Segment operating profit decreased 19% to $635 million from $782 million in the three months ended April 30, 2009.
• Commercial and consumer equipment sales fell 24% to $1.09 billion from $1.42 billion in the same quarter of last year. Operating profit for the segment was $68 million, compared to $154 million a year ago, due to lower shipment and production volumes, unfavorable effects of foreign exchange and higher raw-material costs, partially offset by improved price realization and lower selling, administrative and general expenses.
• Construction and forestry net sales plunged 55% to $600 million from $1.35 billion in the prior year quarter. The company's construction and forestry division incurred an operating loss of $75 million, compared to a profit of $166 million earned in the prior year quarter.
• The company's credit subsidiary, John Deere Capital generated second-quarter net income of $33.9 million, a decline from the previous year's $77.3 million, primarily due to a higher provision for credit losses, lower commissions from crop insurance and narrower financing spreads.

Future outlook:

• Deere currently projects fiscal 2009 net income to be about $1.1 billion, with equipment sales declining about 19%, including a negative currency-translation impact of about 5%. Previously, the company had expected 2009 net income to be about $1.5 billion, and equipment sales to decline about 8%.
• Deere now expects full year 2009 sales of the agriculture and turf division to drop by about 14%, including a negative currency-translation impact of about 6%.
• Worldwide sales of construction and forestry equipment sales are forecast to decline by about 42%, largely as a consequence of a slumping global economy and low levels of construction activity in the United States.
• Earlier, the company estimated sales of agricultural equipment to decrease by about 2%, and sales of construction and forestry equipment to be down about 24%.
• Full-year net income for the company's credit operations is still estimated to be about $250 million, down from 2008 level, primarily due to narrower financing spreads, a higher provision for credit losses and lower commissions from crop insurance, partially offset by benefits from investment tax credits related to wind energy projects.

Overall, looking at each of their business segments, it is clear that the only segment withstanding the best of is in their agriculture division.  Revenue for that segment appeared to drop by only –4% compared to the same quarter a year ago.  But what was somewhat worrisome was in the outlook of their business going forward.  They do not seem to be optimistic at all.  None the less, this is something to watch out for and will keep an eye for similar trends with my agriculture stocks in the next few earnings report.

Agrium increases offer for CF industries ($AGU)

• Agrium today announced a substantial increase in exchange offer of CF industries to $85.20 per CF shares based on Agrium’s closing stock price.
• CF stockholders would receive $40.00 in cash, an increase of $5.00 or 14.3% in the cash consideration.
• Increased offer represents a premium of 53% to CF’s closing price of February 24, 2009. 

"This substantial increase in cash, along with Agrium's strong and diversified business profile, provides CF stockholders with a very attractive opportunity and reaffirms our commitment to acquiring CF. Given an increase of over 25% in the cash component since our initial offer, we believe more than ever that our bid delivers far superior value for CF stockholders compared with any alternatives articulated by CF, including remaining independent or paying a premium for Terra Industries." – Mike Wilson (CEO Agrium)

Source: Marketwire

Agrium (AGU) results

Agrium reported a Q1 2009 net loss today of -$60 million or –0.38c per share compared with net earnings of $195 million or $1.23 per share YoY Q1 2008.  Analyst expected the company to earn $0.24 per share for the quarter. 

Q1 loss includes:

• Qualifying natural gas and power hedge losses of $69 million. 
• $10 million expense in stock-based compensation.
• Inventory write down of $18 million associated with wholesale purchase of resale business

Thus, excluding those items, net earnings would have been $7 million. 

Net sales rose to $1.75 billion from $1.12 billion YoY.  Versus analyst expectations of $1.19 billion.

In terms of segment:

• Retail doubled to over $1 billion from $394 billion YoY
• Crop nutrients $437 million.  Margins on crops were impacted by decline in nitrogen and phosphate prices.
• Crop protection net sales increase 4.5x from $93 million to $426 million YoY. 
• Wholesale net sales dropped from –1.8% from $708 million to $695 million.
• Advanced technologies also dropped -15% from $79 million to $67 million.

On February 25, Agrium had submitted a proposal to the board of directors of CF Industries Holdings, Inc. to acquire all of the capital stock of CF for cash and Agrium shares at US$72 per CF share, or a total of approximately US$3.6 billion

"We remain fully committed to acquiring CF and will continue to seek discussions with CF for a mutually beneficial transaction that delivers additional value for our respective shareholders.”

• Q2 Earnings are expected to be in the range of $1.70 - $2.10 per share. 
• Excluding items, $2.40 vs. $2.77
• Agrium expects North American demand for 2009 to be 10% lower for nitrogen, 25% – 35% lower for phosphate and 30% – 40% lower for potash.

"Spring applications have now commenced in all of our North American markets and the outlook for our business is strong. The first quarter is traditionally our weakest quarter, as we build inventories in preparation for the spring season. We anticipate demand for potash to recover in the second half of 2009” – Mike Wilson (CEO)

Charts still look good, and considering the dismal results, AGU fared really well currently trading down -0.57% for the day.  Stop loss still around $43 level.  Otherwise I will let it run.  

Source: MarketWire

Archer Daniels Midland (ADM) Q3 Profit Plunges 98%

Fundamentals

• Agriculture commodities and products processor ADM reported a 98% plunge in YoY profit for the 3rd quarter.  Hurt by charges related to the company’s equity investments and lower demand for agricultural commodities and crop-based fuels like ethanol. 
• For the 3rd quarter, the company posted profits of $8 million (0.01c a share) down from $517 million (0.80c / share) in the same quarter last year. 
• The results were also attributed by the non-cash after tax charge of $132 million related to currency derivative losses of the company’s equity investment in Gruma S.A.B.
• An income tax charge of $97 million related to the company’s investment in Wilmar International
• Totaling those write-offs to $229 million.
• So overall without those charge-offs, the company would have earned $237 million.
• None the less consensus was 0.49c per share
• Sales dropped by 21% to $14.84 billion from $18.71 billion. Consensus was $16.94 billion
• Decline was due to decreased average selling prices that resulted from price relief of underlying commodity costs as well as foreign exchange impacts on top of decreased sales volume.

Technicals

Support has been formed around the $23.98 level.  A good buying opportunity but no trend has been defined as of now.  But would place a stop loss at $23.26 for cushion.

 

The results of ADM is now putting some concerns for my AGU holdings.  But I believe that AGU is a better run company anyway, so will not add any more positions until earnings results which is on May 6th, tomorrow morning.

Source: RTT News

Interpid Potash Inc. (IPI) an alternative to (AGU)

Multiple bottoms has been made on the $14.30 support level.  $24.76 resistance has also been broken with a fair amount of volume. Stop loss at $24.50 with a level 1 target price of $37.44 and level 2 target price at $42.32