Prices for food commodities remain at or near all time highs as a result of destructive weather conditions and surging global demand.
Citi say there’s now circumstantial evidence that farmers in both the U.S. and Europe are spending more to get higher yields from what they plant. And that means fertiliser companies are going to see huge benefits.
Citi analyst David Driscoll on the U.S.:
Critically, all of our panelists indicated that demand for yield enhancing crop inputs (fertiliser, seed technology, and crop chemicals) has been strong, as farmers are looking to produce solid yields and are being incentivized by the high crop prices currently in the market.
And in Europe, pretty much the same thing, according to Citi’s team there:
Crop prices are at levels high enough to ensure strong fertiliser demand. We believe this will remain the case for the mid term given the challenge to replenish low food stocks in a solid demand environment, which is being boosted by increasing biofuel demand.
In Europe, Citi suggest K+S AG (SDFG.DE) and Yara International (YAR.OL), based on current weakness that makes little sense.
Note just what those profits are going to look like in the U.S. for soy, corn, and wheat. An easy way to visualise why farmers are spending more to ensure that their crops come to market.