Crop condition
Crop condition is an indicator published every week by the United
States Department of Agriculture (USDA) during the planting and harvest
season. The indicator is useful in estimating the yield that farmers
will be able to harvest this year. Solid percentages often point to
strong crop production, which tends to alleviate pressure on the global
stock-to-use ratio—another key indicator watched by agriculture
investors, analysts, and traders. On the other hand, low percentages
often point to a weak production year, which can push corn prices up and
increase demand for fertilizers in the following year.
Conditions remain favorable
The USDA releases crop condition updates every week on Monday,
reflecting data for the previous week. For August 30, the USDA reported
another decline in the percentage of corn crops in “good” and
“excellent” condition. Due to late hotter and drier weather, the
indicator fell from 59% in the prior week to 56%. As corn uses the bulk
of fertilizers in the United States, it’s the most important crop to
follow.
Favorable warm and wet weather as well as strong potash application
helped push conditions to above the seven-year average earlier this
year. While the condition indicator has fallen due to the late heat
wave, we’re lucky we haven’t had a severe drought like last year that
sent the indicator from 60% to just above 20%. Even though the late heat
drove crop conditions lower, it’s helping corn grow. The
wetter-than-normal summer earlier this year had slowed crop growth, but
more crops are now maturing as they benefit from some sunshine, which is
causing corn prices to drop slightly.
While the USDA estimated a record 13.80 billion bushels of corn output for 2013 in August1,
which sent corn prices tumbling, the September’s update (to be released
September 12) will be an important one for fertilizer investors to
watch, as there have been a lot of changes lately.
Effect on fertilizers
While lower crop conditions have been pushing corn prices higher
lately, corn prices aren’t likely to end above $6.00 per bushel this
year. As the days of hot weather are now mostly behind us, crop
conditions are unlikely to suffer much. So corn prices are unlikely to
rise much further from here. This could negatively affect fertilizer
companies such as CF Industries Holdings Inc. (CF), Potash Corp. (POT), Agrium Inc. (AGU), and Mosaic Co. (MOS) because it makes fertilizers more expensive to farmers. Retail prices for urea have
started to roll over. Because demand for potash is more price-sensitive
than nitrogenous fertilizers, this would negatively impact Potash Corp.
(POT) and Mosaic Co. (MOS) more. The Market Vectors Agribusiness ETF (MOO), which invests in various businesses within the agriculture industry, would also be negatively affected.
source: marketrealist
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