Fertilizer Markets and Finance

(By Balachander) CIBC World Markets Inc. downgraded its rating on shares

of Potash Corp. of Saskatchewan Inc. (NYSE:POT : 45.45, -0.33) to

“Sector Performer” from “Sector Outperformer”, saying it expects longer

potash surplus market.

The brokerage, which reduced price target on the stock to US$54 from

US$60, also lowered 2012 EPS estimate for the company to US$3.33 from

US$3.46 and 2013 EPS estimate to US$3.57 from US$4.03 on assumption of

slower potash price growth due to slower demand.

Saskatoon, Canada-based Potash Corp. is engaged in the production and

sale of fertilizers and related industrial and feed products primarily in the

United States and Canada. In addition, the company provides solid and

liquid phosphate fertilizers and animal feed supplements, among other

products.

“As global demand is expected to remain flat year-over-year (India

continues to sit on the sidelines and distributors are unwilling to restock),

we expect potash pricing to follow suit,” CIBC analyst Jacob Bout wrote in a

note. The analyst said Brazilian demand remains the bright spot with

shipments increasing in May & June, while the July line-up remains robust.

Read more at iStockAnalyst

The Moody’s rating agency has downgraded the debt rating of 26 Italian banks, including the giant UniCredit, as the country struggles with recession, tough austerity measures and 1.9 trillion euros of outstanding public debt.

The agency said Monday that Italy is back in a recession, and government measures are cutting demand for loans, resulting in more loan losses and weaker bank profits. The outlook for all 26 banks is negative.

“The ratings for Italian banks are now amongst the lowest within advanced European countries, reflecting these banks’ susceptibility to the adverse operating environments in Italy and Europe,” Moody’s said in a statement.

It however noted that the support from the European Central Bank lowered the default risk for many of the banks. Italian banks received 116 billion euros from the ECB’s long-term refinancing operation in December and another 139 billion euros in February.

The long-term debt and deposit rating of 10 of the banks were lowered by one notch, another eight banks were lowered by two notches, six banks by three notches and two banks by four.

Italy’s largest banks UniCredit and Intesa Sanpaolo were both given deposit ratings of A3 and a standalone bank financial strength rating of C-. UniCredit’s credit assessment was baa2, while that of Intesa Sanpaolo was baa1.

Moody’s just downgraded Greece’s sovereign debt rating to C from Ca.  This puts the debt-laden country’s rating deeper into junk status.

“Today’s rating decision was prompted by the recently announced debt exchange proposals for Greece, which imply expected losses to investors in excess of 70%, which is consistent with Moody’s criteria for a C rating,” wrote Moody’s.

This follows S&P’s February 27 downgrade of Greece to “selective default.

Oil World cut its forecast for South American soybean production, extending the run of downgrades amid ideas that rains in the last two weeks have been insufficient to put a hold on crop losses.

The influential analysis group trimmed its estimate for the Brazilian harvest by 500,000 tonnes to 69.5m tonnes.

The downgrade put it in line with a 69.2m-tonne estimate from Conab, Brazil’s official crop bureau, last but below the 72.0m tonnes forecast by the US Department of Agriculture, whose data set world benchmarks.

And Oil World slashed by 1.4m tonnes to 4.6m tonnes its forecast for the harvest in Paraguay, the world’s fourth-ranked exporter of the oilseed, which the USDA sees producing 6.4m tonnes.

“[There was] very little rainfall received in southern Brazil, Paraguay, Uruguay and Argentina yesterday and very little expected in the next few days, further stressing developing soybeans and other crops,” the German-based group said.

The downgrades more than offset a 500,000-tonne lift, to 47.0m tonnes, in Oil World’s forecast for the Argentine soybean harvest.

Separately, Michael Cordonnier at Soybean and Corn Advisor cut his forecast for Brazil’s soybean crop by 1m tonnes to 69.0m tonnes.

Read more at Agrimoney

NEW YORK (Reuters) - Fitch downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain on Friday, indicating there was a 1-in-2 chance of further cuts in the next two years.

In a statement, the ratings agency said the affected countries were vulnerable in the near-term to monetary and financial shocks.

“Consequently, these sovereigns do not, in Fitch’s view, accrue the full benefits of the euro’s reserve currency status,” it said.

Fitch cut Italy’s rating to A-minus from A-plus; Spain to A from AA-minus; Belgium to AA from AA-plus; Slovenia to A from AA-minus and Cyprus to BBB-minus from BBB, leaving the small island nation just one notch above junk status.

Ireland’s rating of BBB-plus was affirmed.

All of the ratings were given negative outlooks.

Fitch said it had weighed up a worsening economic outlook in much of the euro zone against the European Central Bank’s December move to flood the banking sector with cheap three-year money and austerity efforts by governments to curb their debts.

“Overall, today’s rating actions balance the marked deterioration in the economic outlook with both the substantive policy initiatives at the national level to address macro-financial and fiscal imbalances, and the initial success of the ECB’s three-year Long-Term Refinancing Operation in easing near-term sovereign and bank funding pressures,” Fitch said.

Two weeks ago, Standard & Poor’s downgraded the credit ratings of nine euro zone countries, stripping France and Austria of their coveted triple-A status but not EU paymaster Germany, and pushing struggling Portugal into junk territory.

Read more at Yahoo Finance

Standard & Poor’s axe took another swing at Europe Monday, this time stripping Europe’s bailout fund of its AAA status.

The move was largely expected after S&P downgraded nine euro area governments last week, including France and Austria, two big backers of the European Financial Stability Facility. Like France and Austria, the EFSF is now rated AA+, according to S&P.

Last month, ratings agency had put nearly the entire European Union and the EFSF on notice for a downgrade. At the time, S&P had said that the EFSF’s rating would likely fall in line with the lowest cut.

The stability fund, or EFSF, is considered to be the “firewall” protecting the debt crisis from spreading across the eurozone. France’s downgrade to AA+ has an especially big impact on the rating of the EFSF because France is the second-largest backer of the fund, after Germany.

Experts have warned that a downgrade could lead investors to favor bonds issued by other AAA-rated nations at the expense of the stability fund. That would make it harder for the fund to raise money it needs to support countries like Portugal and Ireland, as well as a second bailout for Greece.

The EFSF is set to offer up to €1.5 billion of 6-month bills Tuesday.

Europe can’t catch a break

The remaining AAA backers of the bailout fund — Finland, Germany, Luxembourg, and the Netherlands — maintain their top tier rating.

Depending on how European officials react to the cut, S&P said the rating on the EFSF could either be restored or further downgraded.

“The outlook is developing, which reflects that we could raise the EFSF’s long-term rating to AAA if we see that additional credit enhancements are put in place, but also the likelihood that we could lower the rating further if we conclude that the creditworthiness of the EFSF’s members will likely be further reduced over the next two years,” the ratings agency said in a statement.

View this article on CNNMoney

Standard & Poor’s is stripping France of its AAA credit rating for the first time, Agence France-Presse reported, citing an unidentified government official.

S&P won’t change its rating on Germany, the Netherlands and Luxembourg, the official said, according to AFP.

A downgrade by S&P would signal that the latest pledges by European leaders to clamp down on deficits and step up cooperation won’t be enough to end the region’s debt crisis and curtail the rise in France’s borrowing costs. The country’s benchmark 10-year bonds now yield 133 basis points more than debt of AAA-rated Germany.

A downgrade of France may further complicate Europe’s efforts to stem the crisis by threatening the rating of the region’s bailout fund. The European Financial Stability Facility, which is funding rescue packages for Greece, Ireland and Portugal partially with bond sales, owes its AAA rating to guarantees from the euro region top-rated nations. A French downgrade may prompt investors to demand higher rates on the fund’s debt.

French President Nicolas Sarkozy has tried to minimize the potential impact of a downgrade, calling it “not insurmountable” in an interview published in Le Monde on Dec. 12, three days after an all-night summit in Brussels that he had said was the last chance to save the euro.

“If rating companies pull it, we’ll face the situation coolly and calmly,” Sarkozy told the newspaper. “It would be an additional difficulty but it’s not insurmountable. What is important is the credibility of our economic policy and our strategy of reducing spending.”

Election Woes

Sarkozy’s spokesman Franck Louvrier declined to comment on reports today that the government has been notified by S&P of a cut in the country’s rating.

The downgrade would come amid signs that France is slipping into a recession, complicating Sarkozy’s bid for re- election in voting in April and May.

Sarkozy, who has sought to protect his government’s creditworthiness by announcing tax increases and spending cuts, has attempted to position himself as the most credible candidate on economic matters.

Those austerity measures are contributing to the slowdown in France. The economy probably shrank 0.2 percent in the fourth quarter and will contract 0.1 percent in the first three months, the national statistics institute Insee said on Dec. 16.

Sarkozy trails his main rival, Socialist Party candidate Francois Hollande, by about 14 points in voting intention for the second round of the election, according to a BVA poll for Le Parisien newspaper published Jan. 9.

S&P, Moody’s

S&P first placed the ratings of 15 euro nations, including AAA-rated Germany and France, on review for possible downgrade on Dec. 5 pending an assessment of the summit. EU leaders, in their fifth attempt to come up with a comprehensive solution to end the debt crisis, agreed at the Dec. 9 summit to forge a tighter fiscal union, shore up its bailout funds and tighten rules to curb future debts.

Moody’s Investors Service followed on Dec. 12, saying it would review the ratings of all European Union countries after the summit failed to produce “decisive policy measures” to end the region’s debt turmoil. Fitch Ratings on Dec. 16 lowered its outlook on France and put all the euro-region’s non-AAA rated countries on review for possible downgrade. Fitch then offered France some relief on Jan. 10 when it said that it did not expect to cut the country’s top rating this year.

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net;

To contact the editor responsible for this stor Craig Stirling at cstirling1@bloomberg.net

Potash Corp. of Saskatchewan was upgraded to outperform from sector perform at RBC Capital Markets as analyst Adam Schatzker sees investors shifting away from defensive stocks and into names with high quality assets.

However, he cut his target on the stock to US$50 from US$58 on reduced fertilizer price forecasts and a lower earnings per share multiple of 13x (from 14x) for 2012. That outlook implies upside of roughly 24% from Wednesday’s close of US$40.22.

RBC now expects nitrogen fertilizer prices will be down 14% on average and phosphate prices will be down 17%. The analysts are less bearish on potash, seeing prices down just 8%, but they anticipate that producers may give up volumes over price in 2012.

“We think that Potash Corp. is well positioned for a recovery in 2012,” Mr. Schatzker said in a note to clients. “The company has almost completed the major spending for its massive brownfield expansion program and we believe it will soon become a ‘cash cow’ as it takes advantage of healthy potash prices with growing sales volumes.”

He believes Potash Corp. has the best portfolio of producing assets, in addition to four strategic investments.

RBC also downgraded Agrium Inc. to sector perform from outperform and slashed its price target to US$75 from US$90.

Mr. Schatzker continues to believe that Agrium is a good defensive choice, however the recent rapid deterioration of nitrogen prices and RBC’s muted outlook for urea and ammonia in 2012, its EPS forecast for 2012 dips by 10%, 94¢ per share.

“We think that the time for defensive fertilizer equities will soon be over given our view that fertilizer equities will likely bottom in Q1/12 and rally on the back of strong fertilizer demand for the 2012 planting season coupled with the potentially crop-damaging weather being experienced in South America,” the analyst said.

He is also concerned that Agrium’s gross margins in its retail business may come under pressure in the first half of 2012 as higher-cost nutrients purchased in the fourth quarter of 2011 will be sold into a weaker price environment.

Jonathan Ratner  Dec 22, 2011 – 8:09 AM ET | Last Updated: Dec 22, 2011 1:58 PM ET

NEW YORK (Reuters) - Moody’s on Friday cut Belgium’s credit rating by two notches, saying the euro zone debt crisis increases funding risks for countries with high public debt burdens.

Concerns about Belgium’s economic growth prospects and its banking system, particularly with contingent liabilities stemming from the Dexia group bailout, also contributed to the decision, Moody’s said.

“The fragility of the sovereign debt markets (in the euro zone) is increasingly entrenched and unlikely to be reversed in the near future,” Moody’s said in a statement.

“It translates into heightened potential for funding stress for euro area countries with high public debt burdens and refinancing needs like Belgium,” it added.

Belgium’s government declined to comment on Moody’s decision.

The ratings agency lowered Belgium’s local- and foreign-currency government bond ratings to Aa3 from Aa1. The new rating has a negative outlook, which means another downgrade is possible in a couple of years.

The negative outlook reflects ongoing concerns about Belgium’s government finances and economic growth prospects in the euro zone due to the debt crisis, Moody’s sovereign credit analyst Alexander Kockerbeck told Reuters in an interview.

Belgium on December 5 formed a new six-party coalition government after a caretaker administration approved a budget with austerity measures at the end of November. The budget agreement came just hours after Standard & Poor’s cut the country’s rating to AA from AA-plus.

The new government must satisfy demands of the Dutch-speaking Flemish majority for devolution of further powers to Belgium’s regions, and may have to redraw a budget that economists say is based on too optimistic a growth forecast.

“The recent experience in Belgium is that the political bargaining process can be very challenging and it could be that the new government may need to agree on additional measures,” said Kockerbeck.

“It is challenging certainly for the government to come up with additional measures given the downward revisions of economic growth that we experienced in the euro zone as a whole,” he added.

Earlier on Friday, rival Fitch Ratings placed Belgium’s AA-plus rating on credit watch negative, signaling a downgrade is possible within three months.

Standard & Poor’s, which rates the country at AA, also has the rating on watch negative as part of a broader review of 15 euro zone countries.

On Thursday Moody’s cut the rating on Dexia’s French division Dexia Credit Local to Baa1 from A3, citing concerns about the comprehensiveness of the funding guarantee scheme provided to the unit. It threatened the division with more cuts.

In October, Belgium, France and Luxembourg agreed to guarantee the bond funding raised by the division for the next 10 years, up to 90 billion euros ($116.6 billion).

(Additional reporting by Philip Blenkinsop in Brussels; Editing by Dan Grebler and Andrew Hay)

By Daniel Bases and Walter Brandimarte

ROME (AP) — The Fitch agency downgraded its sovereign credit rating for Italy and Spain on Friday and said its long-term outlook for both countries was negative, citing high debt and poor prospects for growth.

Separately, Fitch also said it was keeping Portugal’s debt rating on watch for a possible downgrade, with a decision due by the end of the year. Portugal was the third and latest eurozone country to receive an international bailout package after Greece and Ireland.

The reports are a blow to Europe’s hopes of containing the debt crisis that has already seen three countries bailed out. Italy and Spain have the eurozone’s third- and fourth-largest economies and are widely considered too expensive to rescue.

Fitch downgraded Italy’s creditworthiness from AA- to A+, citing high public debt, low growth and the “politically technical and complex” solution necessary to fix Italy’s financial ills and earn back the trust of investors.

While saying Italy’s recent austerity measures improved its standing, “the initially hesitant response by the Italian government to the spread of contagion has also eroded market confidence in its capacity to effectively navigate Italy through the Eurozone crisis,” Fitch said.

The move came after Moody’s Investors Service on Tuesday downgraded Italy’s bond ratings to A2 with a negative outlook from Aa2. On Sept. 19, Standard & Poor’s cut Italy’s long- and short-term sovereign credit ratings one notch, though its rating is still five steps above junk status.

Premier Silvio Berlusconi’s office sought to highlight some of the positive notes in the Fitch report, including that the agency found “eminently achievable” Italy’s bid to stabilize and gradually reduce its debt to gross domestic product ratio — which at 120 percent is one of the highest in the eurozone.

Constraining growth in Italy are high public debt, high taxes, an inefficient public sector, competitive barriers, an inflexible labor market and Italy’s notorious “north-south” divide, Fitch said in warning that a “more radical and sustained” economic reform was needed to keep Italy from slipping farther from its more financially stable European peers.

Italy’s banking system has been resilient but its recent increased cost of funding “will place further pressure on already strained profitability,” Fitch said.

Despite the downgrade, Fitch said Italy’s sovereign credit profile remains “relatively strong” and that its budget position compares favorably to other European countries — another element stressed by Berlusconi in his statement.

The director general of Italy’s central bank, Fabrizio Saccomanni, noted the “herd-like” mentality of the various agencies ratings and said the Fitch downgrade wasn’t anything new.

He said Italy’s banks “have a level of solidity and capitalization that is absolutely adequate compared to European standards,” and that the Bank of Italy was in “constant dialogue” with them to ensure they have the liquidity necessary to confront any fiscal tensions, the ANSA news agency reported.

Also Friday, Fitch cut Spain’s sovereign debt rating by two notches to AA- from AA+, citing increased risks from the eurozone financial crisis as well as high debt in regional governments and weakening growth prospects.

Like Italy, Fitch kept a negative outlook on Spain, but said it expected the country to remain solvent. It says that debt reduction efforts will weigh on growth and keep unemployment high. Spain currently has the eurozone’s highest jobless rate at over 20 percent.

It said more reforms will be necessary to make Spain’s economy more competitive, particularly in the labor market, and that another euro30 billion ($40 billion) may be needed to re-capitalize the country’s weaker banks.

Banks across Europe are under pressure in markets because of investor fears that they could take heavy losses on government debt they own.

The news of the downgrade came as two Spanish banks, Banco Popular Espanol, S.A. and Banco Pastor, S.A., said they were studying a fusion which, if agreed by shareholders, could reinforce Popular as the fifth largest bank by market capitalization with euro161.3 billion ($216.69 billion).

In joint statements the banks said the deal would enable Banco Popular “to reach control of” Banco Pastor, that would “retain its brand name and its regional characteristics.”

Fitch said the debt crisis — which has seen financial markets drop severely on worries that some governments, particularly Greece, will be unable to repay all their borrowings — will take time to fix.

___

Harold Heckle in Madrid contributed to this report.

The stock market buckled Monday under the weight of a crisis in Europe and danger of recession at home. Reeling from a downgrade of American debt, the Dow Jones industrials plunged 634 points.

It was the worst day for the market since the financial crisis in the fall of 2008 and extended Wall Street’s sudden, sharp decline. Stocks have lost 15 percent of their value in just two and a half weeks.

Monday was the first trading day since Standard and Poor’s downgraded the United States’ risk-free credit rating, and the selling started at the opening bell. The Dow dropped 250 points in minutes. For the rest of the day, investors looked for safer places for their money. With few buyers left for stocks, the market could only drift lower.

The Dow finished the day down 5.5 percent. The point decline was the worst since Dec. 1, 2008, and the sixth-steepest ever. The average ended at 10,809.85, its first close under 11,000 since November.

The turmoil in the U.S. markets was the end of a daylong rout that swept the world. Stocks lost 4 percent in South Korea and 2 percent in Japan, then 5 percent in Germany and 4 percent in France.

The selling picked up again early Tuesday in Asia. Japan’s benchmark Nikkei 225 index was off nearly 5 percent, while Hong Kong’s Hang Seng index shed more than 7 percent.

In the U.S., stocks fell even though Moody’s, another major credit rating agency, stood by its top rating of Aaa for the United States. It said it could downgrade the U.S. if it did not cut its deficit, “but it is early to conclude that such measures will not be forthcoming.”

In a bit of irony following the S&P downgrade, investors decided U.S. debt was one of the safest places to be. They also sought refuge in gold, which set a record price.

“The S&P downgrade of U.S. government debt is the least of our problems,” said economist Scott Brown at Raymond James & Associates. “The bigger worry is subpar economic growth and the threat of a new recession.”

BEIJING (AP) — China, the largest foreign holder of U.S. debt, demanded Saturday that America tighten its belt and confront its “addiction to debts” in the wake of Standard & Poor’s decision to downgrade the U.S. credit rating.

China currently owns $1.2 trillion of U.S. Treasury debt, the largest stake of any central bank. The commentary carried by the state-run Xinhua News Agency was Beijing’s first official response to the S&P decision.

“The U.S. government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone,” Xinhua said.

It said the rating cut would be followed by more “devastating credit rating cuts” and global financial turbulence if the U.S. fails to learn to “live within its means.”

“China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets,” it said.

Xinhua said the U.S. must slash its “gigantic military expenditure and bloated social welfare costs” and accept international supervision over U.S. dollar issues.

Last month, China’s top general, Chen Bingde, also linked America’s financial woes to its military budget and asked whether paring back on defense spending wouldn’t be the best thing for U.S. taxpayers.

Such comments reflect Beijing’s desire that Washington reduce its military presence in Asia. The U.S., rattled by China’s military buildup, also routinely chides Beijing for its fast-growing defense spending.

Xinhua also suggested a new global reserve currency might be necessary to replace the dollar, a position China has frequently advocated.