Companies such as Cummins (CMI) are reporting big positive earnings surprises for the third quarter—11 cents a share above consensus for Cummins—and then seeing shares get slaughtered after warning investors about weakness in the fourth quarter. (Cummins, a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ , fell 5.1% the day of its news.)

Norwegian fertilizer maker Yara International (YARIY in New York or YAR.NO in Oslo) did just the opposite. The company announced a slight miss—with EBITDA (earnings before interest, taxes, depreciation, and amortization) coming in about 2% below consensus–about 2% warning investors about a weaker fourth quarter. But then signaled a stronger fourth quarter.

Yara International’s shares are up 4.4%, as of 12:30 p.m. in New York on October 26, since the company reported earnings on October 21. (Yara International is also a member of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/.)

Of course, it didn’t hurt that Yara’s “bad” third quarter saw net income climb by 86% from the third quarter of 2010 (excluding currency effects and one-time items the increase was 83%.) EBITDA excluding special items grew by 66%. Not too bad no matter which way you dice it.

Yara International is riding a huge wave of rising prices for the value-added nitrate and complex nitrogen/phosphorus/potassium fertilizers that made up 60% of its sales volume in the third quarter. Read more

Buy Yara International (YARIY)

Shares of Yara International (YARIY in New York and YAR.NO in Oslo) look like they’ve finally worked through the problems that sent the stock down from a high of $60.15 on January 18 to a low of $44.38 on March 16. As I post this the shares are trading at $52.90.

The problems go back to February when the company issued a warning that fourth quarter EBITDA (earnings before interest, taxes, depreciation, and amortization) would total just NOK 3 billion (that many Norwegian Krone equals about $523 million). Analysts had been expecting something more like NOK 3.8 billion.

A bit of the shortfall was intentional: Yara said it had deferred some sales into 2011 in order to take advantage of a rising trend that promised higher fertilizer prices in 2011.

Part was a result of trends, such as higher energy costs, that were challenging companies across the sector.

But the biggest piece was a NOK 165 million write –down in quarter related to its joint venture Burrup Fertilisers as a resulted of a Yara-initiated investigation into financial irregularities at the joint venture. In 2009 Yara had posted net income from its 35% ownership of NOK 311 million. In 2010, after the write down, Yara’s net income from Burrup fell to a negative NOK 156 million.

Yara’s actual quarterly report released in February 15 was slightly worse than the February warning. EBITDA fell to NOK 2.99 billion, for instance.

And the report raised fears for 2011. Read more

Looking for bargains? Look down on the farm

If you’re thinking of bargain hunting as global stock markets reel under the impact of what is close to open war by the Gaddafi regime on the Libyan people—but would like a little near-term positive catalyst with those lower prices, might I suggest the farm sector. Stocks like Potash of Saskatchewan (POT), Deere (DE) and Yara International (YARIY) were all down hard on Tuesday, February 22, falling 5.5%, 4.2%, and 4.1%, respectively. Most of them dropped again today February 23.

And on Thursday February 24 the U.S. Department of Agriculture is set to announce another depressing crop report. Of course, bad crop reports are good for farm prices—and for the stocks of those companies that sell equipment and fertilizers to farmers.

Ahead of the report, analysts surveyed by Bloomberg are looking for a 3.5% increase in the U.S. Department of Agriculture’s forecast of U.S. corn planting. It will also forecast global a decline in global corn stockpiles to just 15% of global use, the analyst consensus says. That will bring corn inventories to the lowest level in 37 years. Read more

China, the world’s largest wheat producer, is facing a severe drought in areas of the North China plain that account for 67% of the country’s wheat crop. China’s wheat production fell to 114.5 million tons in the 2010 harvest from 115.1 million tons a year earlier. This year the harvest could drop another 4 million tons.

This is a big deal since China is also the world’s largest consumer of wheat and accounts for about 17% of global wheat consumption.

The government is working to provide additional irrigation to mitigate the drought.

In Western Australia—across the continent from Australia’s worst floods—drought has put the wheat crop in Australia’s largest wheat producing state in doubt. The impact of the decade-long drought itself is intensified by a battle for Western Australia’s scarce water supplies between farmers and miners. There are about $170 billion in new mining projects on the books for the next five years. All those mines need water to help dig out and process ore, to remove waste rock and to suppress dust. Mining is already the largest user of water, taking 27% of licensed water, compared to 22% for agriculture. Six years ago the proportions were reversed with farming getting 37% of water and mining 26%.

I think you can see where I’m going with this, right?

No, no. Not more about the increasing global squeeze on food supplies. I’ve dealt with that quite enough recently, thank you. (See my posts http://jubakpicks.com/2011/01/14/food-prices-are-back-to-2008-peaks-here-are-10-stocks-that-tap-into-the-trend/ and http://jubakpicks.com/2011/02/01/egypt-has-escalated-the-food-crisis-and-shifted-global-economic-policy-on-inflation-too/ )

This time I want to talk about water scarcity, the trend that everyone sees but that it is so difficult to invest in. Read more

Reports of China deal send fertilizer stocks soaring

Fertilizer stocks are flying today on news, reported by Industrial Minerals http://www.mineralnet.co.uk/Article/2350062/Potash-market-flat-in-November.html , that China and Belarusian Potash are negotiating a contract for as much as 850,000 metric tons.

Such a deal would be huge for fertilizer producers and stock since even the most optimistic analysts haven’t seen China buying potash in 2009. Read more