Not Yet! With the fertilizer group breaking to 52-week highs in relative terms, is it time to book profits? Canaccord Genuity Portfolio Strategist Martin Roberge says not yet. Roberge highlights the combination of elevated farmers' margins, strong Chinese grain demand, rapidly depleting U.S. fertilizer inventories, and stellar profit margins should support firmer fertilizer usage and prices going forward. Despite weakening global commodity prices this summer, grain prices have held up nicely, supported by concerns that hot and dry weather could lead to weak crop yields; that is, further grain supply constraints. As long as grain prices are rising on a YoY basis, the odds of market out-performance are likely about two-thirds for the fertilizer group. Roberge says the rationale behind this assumption is quite simple: higher grain prices boost farmers' margin, and thus should provide an incentive for farmers to intensify their fertilizer usage, boosting fertilizer demand and prices. Accordingly, he expects U.S. fertilizer shipments to remain robust, inventories to remain tight, and fertilizer prices to stay firm in H2/11. Interestingly, this bright domestic outlook for fertilizer demand is occurring while U.S. corn prices are trading at a US$2/bushel discount to Chinese corn prices. Roberge expects this price differential, along with a stronger Chinese yuan, to push Chinese imports easily above the strong levels seen in 2008. If next week's USDA report (September 12) surprises to the lower side of production, fertilizer prices should enjoy more durable price strength as importing countries try to secure supply at these levels for the next year. Finally, with natural gas at US$4/mmbtu, manufacturing margins are back to past cyclical highs. Ammonia prices are trading nearly 3x above that of natural gas, a major input cost for fertilizer retailers. This has allowed the industry to post stellar margins, surpassing the 12% mark last seen during the 2008 bubble. Fortunately, this time around, the spike in fertilizer prices and margins does not result from an ethanol craze. Roberge's bottom line is stay overweight fertilizer stocks. New relative price highs appear sustainable. Demand and supply fundamentals for grain prices have improved markedly owing to strong U.S. demand and Chinese imports. The five largest fertilizer stocks in North America are: POT, MON, MOS, AGU, and CF. POT is a Canaccord Genuity Canadian Focus List name.

Eoin Treacy's view Grain and bean prices look more likely than not to advance. Cotton prices were limit up yesterday and firm again today. The demand side of the equation remains relatively stable while the supply side has been pressured this year particularly due to inclement weather.

Fertiliser shares underperformed for much of the year but escaped the worst of the selling pressure from late July. Most are still above their respective 200-day MAs and some have broken progressions of lower rally highs. Potash Corp of Saskatchewan is retesting the C$60 area having rallied impressively over the last three weeks. Agrium and Viterra have relatively similar patterns. CF Industries has outperformed by a wide margin. It hit a new all time high last month and is currently somewhat overextended relative to the 200-day MA. However a break in the progression of higher reaction lows would be required to question medium-term upside potential.