Record High Soybean And Corn Prices In Next 18 Months Will Create Bull Market In Agricultural Chemicals Sector States Miller + Tabak Expert

Wall Street Transcript

67 WALL STREET, New York - July 23, 2012 - The Wall Street Transcript has just published its Agricultural & Specialty Chemicals Report offering a timely review of the sector to serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Chemicals Companies Pricing Power - Commodity Cost Inflation - Crop Yield Management - Fertilizers, Paints and Coatings, and Petrochemicals

Companies include: Monsanto Co. (MON), EI DuPont de Nemours & Co. (DD), Syngenta AG (SYT), CF Industries Holdings, Inc. (CF), Agrium Inc. (AGU), Potash Corp. of Saskatchewan, (POT) and many others.

In the following excerpt from the Agricultural & Specialty Chemicals Report, Tim Tiberio a senior analyst with Miller + Tabak discusses the outlook for the sector and for investors.

TWST: Where are you focusing your attention in the ag chemical space these days?

Mr. Tiberio: Within the ag chemical space, I'm focused primarily on the fertilizers, crop protection and seed technology names. That being said, we also cover the grain processors and livestock producers as part of our overall ag focus.

TWST: What's drawing you to those areas?

Mr. Tiberio: I look at the ag chemical space from three angles. First off, the opportunity for the industry to assist in improving crop yields, as we continue to see pressure on global grain stocks and arable land. Secondly, the improvement in industry pricing power due to consolidation and the growing need for crop yield solutions. And finally, the potential for North American fertilizer producers to lower their production cost curve as a result of a significant decline in natural gas prices.

TWST: How would you characterize the ag chemicals industry over the past six to 12 months?

Mr. Tiberio: Share performance of most ag chemicals was volatile in the first half of 2012, as investors attempted to ascertain whether record U.S. corn plantings would result in a material rebuilding of corn inventory levels, and concomitantly, lower grain prices. At the same time, global macro concerns in Europe and the emerging markets raised questions about future demand potential.

That being said, growing drought conditions in the U.S. corn belt and a disappointing South American soybean crop has eliminated any hope of a material improvement in global grain stocks in the near term. As such, most ag chemical producers are facing a more supportive price environment for their products heading into H2 12.

TWST: Do you have a sense of how it's all going to play out at this point?

Mr. Tiberio: I think it's fair to say that the recent deterioration of both the corn and soybean crops in the U.S., plus already tight global stock levels could result in record high corn and soybean prices in the near term. We believe higher grain prices will be generally supportive for ag chemical product prices during the next 12 to 18 months.

However, we could see some changes in demand linearity this fall from some farmers due to the extreme impact on soil conditions and the timing of crop insurance payments. While demand linearity can be skewed both positively or negatively by these near-term considerations, the 12-month outlook for the ag chemical universe looks very compelling.

TWST: According to Morningstar's five-year numbers, few industries have seen stock prices rise more than this one. Would you speak to some of the drivers of that, particularly those that may not be out front?

For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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