Sun Shines on Agricultural Firms in 2nd Quarter

After unfavorable weather weighed on first-quarter results for many of the agriculture companies we cover, volumes rebounded for nearly all companies in the second quarter.

Potash producers are the most undervalued group in our agricultural coverage. This is largely due to our higher near-term potash price forecast and our outlook that both Nutrien and Mosaic will be able to reduce potash unit production costs, which should boost profits. Nutrien and Mosaic are both trading at a more than 10% discount to our fair value estimate.

While we also view Compass Minerals and SQM as cheap, agricultural is a smaller portion of profits for both companies. They are both trading in 4-star territory today. We view Compass as undervalued due to our outlook for the deicing salt business, and SQM looks cheap due to our lithium outlook.