瑞信-美股-农业行业-美国农业科技：需求会显著下降-2019.10.28-46页.pdf

Agricultural Sciences SectorStill Need to be Selective as#s Need to Come Down Considerably;Prefer CPC to Ferts into YE;Searching for N-P-K Cost Curve SupportFertilizers|Sector Review Still Search for Direction Trade,Weather and S/D Factors All in Play:The global ag complex continues to search for direction given a plethora of catalysts,including(i.)an eventual US/China trade resolution(up to$25bln of incremental agricultural trade),(ii.)the“final”tally of the US crop and subsequent effect on the 2020 outlook,(iii.)changes to global renewable mandates(US moves to benefit E15,RenovaBio in Brazil,etc.),(iv.)the eventual“reversal”of ASF,and(v.)the effect of new N-P-K supplies(whats hit the global market in 19 vs.whats“left”for 20 and beyond).We maintain our thesis that investors need to be selective within the ag space,citing our beliefs that(i.)20 fert consensus#s need to fall materially,(ii.)N-P-K markets will remain supply/cost-curve driven(i.e.even modest increases in N-P-K demand will fail to materially move prices),and(iii.)developed market ag communities still face several hurdles(credit,broad trade uncertainty,etc.)and increasing competition from Latam.Overall investor sentiment leans cautiously optimistic.Risk to US Production Ests is to the Downside,But Dont Expect Timely Updates:Following a slew of channel checks,it is clear that both harvest rates and yields will fall short of USDA expectations,but we dont expect any meaningful changes for the time being.Its worth flagging even Senator Grassley(R-IA)is raising concerns re:the USDAs forecasts and methodologies in DC,so farmer complaints are not being overlooked.While we do not subscribe to the ultra bull view on corn(95mm in 20,$4.50/bu prices,etc.),based on our work there is enough substance to underwrite corn production 5-7%below the USDA,which in turn drives the stock:use ratio down to the 10%range.The CS US corn B/S reflects 88.5mm acres of corn(-1%yr/yr)w/yields in 162bu/ac,while our US soy B/S reflects 76mm acres(-14%yr/yr)w/yields in the 46bu/ac range.Our price deck now reflects$3.80-4.30/bu/$9-10/bu for new crop corn/soy,respectively.Potash Markets Stabilizing;China Contract and 20 Demand are Now Key:Recent supply curtailment announcements entail roughly 3mmt of potash production on a global basis(5 announcements).Its too optimistic to give“full credit”for the headline#(a bullish signal),but we do believe there is enough substance to believe potash markets will stabilize at slightly lower lows and the“worst case scenario”for 20 is now off of the table.The India contract($280/t through March 20)is slightly better than expected,while expectations for the China contract have fallen to-$20/t(CSe$270/t in late 1Q as port inventories are still elevated);FSU producers will likely be the first movers for the China contract vs.Canpotex.Not Bullish on US Seed Pricing,But Fears are Overblown:Following several channel checks on US seed price cards(CTVA has 40 price cards,while Bayer posted 14),we do not believe“panic”is warranted.The three primary conclusions we have are(i.)discounting methodology composition for major seed producers is changing post mergers(Bayer Plus,etc.),(ii.)gross price per unit is generally flattish for US corn/down MSD for soy(Stine is being very aggressive in soy),and(iii.)demand for E3 is healthy,but supply is short year 1.New 2020 Ests and PTs:FMC($6.70,new TP$102),(MOS($1.35,new TP$26),CTVA($1.60,new TP$30),NTR($2.90,new TP$55),CF($2.50,new TP$43).28 October 2019Equity ResearchAmericas|United StatesDISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Research AnalystsChristopher S.Parkinson212 538 6286christopher.parkinsoncredit-Chris Counihan44 20 7883 7618chris.counihancredit-Victor Saragiotto55 11 3701 6303victor.saragiottocredit-Amanda Foo603 2723 2089amanda.foocredit-Gerald Wong,CFA65 6212 3037gerald.wongcredit-Lucas Beaumont212 325 2458lucas.beaumontcredit-Kieran de Brun212 538 3440kieran.debruncredit-Harris Fein212 538 3064harris.feincredit-28 October 2019Agricultural Sciences Sector2Table of ContentsGlobal Ag Market Updates4Global Nitrogen Overview7Global Nitrogen Price Outlook9Key Nitrogen Input Prices11Global Potash Overview13Global Phosphates Overview17Asia Palm Oil Overview20Global Soft Commodity Overview24Global FX Overview25Recommended Reading27CS Global Agriculture Team28FMC Corporation29Mosaic Co.31Nutrien Ltd.33Corteva,Inc.35CF Industries Holding Inc.3728 October 2019Agricultural Sciences Sector3Figure 1:Summary of Estimate ChangesEPS EstimatesPrev.EstimatesFY19FY20FY19FY20FMC$102$102$5.80$6.70$5.85$6.90Still expect 200-400 bps of revenue outperformance vs.CPC markets,while 2020 margins should benefit on better price/mix,the roll off of the DuPont TSA and initial SAP benefits.Expect cash flow conversion as a%of net income to steadily improve to 80%over the next 2-3 yearsMOS$26$28$0.65$1.35$1.95$2.40Spot phosphate prices are a headwind to yr/yr EBITDA growth,but lower sulfur prices and$200mm of non-repeating costs in 19 provide tailwinds for 20.Potash prices to stabilize at lower levels.CTVA$30$31$1.17$1.60$1.95$2.10Cost cuts,CPC growth and buy-back to drive 2020 EPS growth.Corn revenues to edge higher on US acreage growth and positive mix(longer maturities and Qrome).Soy platform to remain challenging on lower gross unit prices and trade uncertainty.LT thesis relatively unchanged.NTR$55$57$2.65$2.90$2.85$3.20Outlook for 2020 Retail remains solid including M&A contributions,while capital allocation should remain a favorable catalyst.Potash prices should stabilize at lower levels(expect a China contract in 1Q20),but we expect N prices to remain fairly volatile vs.relatively bullish expectations.CF$43$45$2.35$2.50$2.80$3.25CF-N prices to remain volatile as ample supply availability is set to at min match healthy demand trends.Global feedstock deflation is driving a flatter 20 cost curve,while UAN premiums are lower(or non-existent)vs.historical norms.Execution,netback maximization and cap allocation remain tailwindsTicker TPPrev.TPCommentsSource:Credit Suisse estimates28 October 2019Agricultural Sciences Sector4Global Ag Market UpdatesUS Market SummaryUS farmers remain caught in the fray between global trade disputes,biofuel policy uncertainty and generally sluggish demand.As this follows one of the most challenging US planting seasons in recent memory,19 is a year most will choose to forget.That said,our broad discussions w/the agricultural community reflect more optimism than not especially as it pertains to 2020.In our view,well capitalized farmers will continue to invest in their respective operations,though we are closely monitoring credit conditions and rental rates as we head into next year.In the interim farmers are focusing on the harvest,which from our channel checks is rendering lower than expected corn yields,especially in the Western Corn Belt.Soy yields appear to be generally in-line with lower expectations due to late planting.We continue to believe that USDA corn#s are generally too high,as we forecast production in the+/-13bln bu range(-MSD%vs.the October WASDE)our rationale includes(i.)CS channel checks are consistently reflecting a corn acreage#in the 88.5mm range(vs.USDA at 89.9mm),(ii.)the degree of shorter term maturities vs.“normal”was incredibly elevated in June(maturity correlated w/yield potential),(iii.)the harvest rate is likely to be lower than expected(historical norm 92%),and(iv.)yields are coming in lower than expected in multiple regions.While the end result of our analysis still leaves us short of“bullish”,we feel it is characteristic of a more“normal”environment in 20.Recent snowfall and generally cold weather is hindering farmers ability to harvest and/or do field work in Western Canada and the US Northern Tier(ND,SD,MN,MI and WI),which is a risk to the fall application window.The news out of the Midwest is mixed,with some regions well on track and others still lagging.In the US Southeast,the tone has been generally positive until recent storms,but we still sense the region will be a bright spot.In aggregate,we believe the fall application season will now inevitably be condensed,which represents a risk to 2H19 ests,though we feel this theme is now reasonably well appreciated by most investors.Our price deck now reflects$3.80-$4.30/bu/$9-$10/bu for new crop corn and soy,respectively.In our view,new crop prices in these ranges will drive 2020 corn acreage in the 91mm to 93mm range(biased to the upside),while we expect soy acreage to settle in the 86mm to 88mm range(dependent heavily on trade developments).As far as the ag sector is concerned,we believe this back-drop warrants a cautiously optimistic stance.Latam Market UpdateVictor Saragiotto(CS Brazil)Planted Area Expanding:Soybean planting season started in Brazil in the second half of September,following the end of the fallow period in several states of Brazil.With the lack of rainfall at the beginning of the season,some investors are concerned about the potential negative impacts on soybean acreage,which would ultimately reduce total production.We believe that this is not the case in the current scenario,as according to our channel checks rainfall seems to have normalized in the past few weeks,accelerating the expansion of the planted area.This is also good news for corn production,as the timing should offer the best planting window for winter-crop corn.Expect Another Record for Soybean Production:Soybean production in Brazil should increase 4.7%y/y to 120.4Mt in the 2019/20 harvest,explained by expansion of 1.9%in planted area to 36.6 million hectares and 2.7%growth in yield to 54.9bags/ha in the same period.On the corn front,production is estimated to decrease 1.7%y/y to 98.4Mt in the 2019/20 harvest,given the potential yield reduction of 1.9%to 93.5bags/ha,partially offset by a 0.2%increase in planted area,to 17.5 million hectares.It is important to highlight that these 28 October 2019Agricultural Sciences Sector5estimates are more accurate for soybean values,given that this crop is already being planted in Brazil,while most of corn will still be planted in the second harvest.US Seed Card OutlookUS seed cards continue to be a focus of investors,particularly given the inconsistency of data over the past several years.We are the first to caution investors from directly reading into the gross price per unit as discounting methods have been an integral aspect of the industry price structure for decades in other words,net price is whats material and unfortunately not even the cos know“exactly”what to expect on a yr/yr basis(discounts include payment timelines,volume rewards,bundling packages,“new farm”discounts,etc.).Its worth emphasizing this point given both Corteva and Bayer have new discounting programs(not simple“tweaks”from the year before)for the 2020 season,so this point is especially pertinent for NTM forecasts.It is also worth flagging that Corteva has 40 seed price cards,while Bayer(Monsanto)has roughly 14(#s can change annually).After several conversations with farmers,distributors(pvt and public),regional seed cos and the major players,below are our simple conclusions:Corn Seed Price:Gross unit pricing is typically-2%to+2%;regional competition is average as of our initial readSoy Seed Price:Gross unit pricing is typically-6%to-2%;regional competition is elevated as of our initial readThe composition of discounting mechanisms also appears to be evolving,with more generous financing timelines(pre-pay incentives,etc.),cross-sell offers(w/CPC purchases and/or agronomy technology)including“Corteva Cash”,replant offers,etc.The Bayer Plus program integrates multiple legacy discount methodologies(which results in more or less a neutral effect on projected net price),but we stress this doesnt indicate Bayer is becoming overly aggressive.In aggregate we expect the net effect of these issues to represent a slight headwind into 2020,but stress that we feel recent 3Q19 bearishness is overblown.The keys from our perspective are the benefit of higher yr/yr corn acres(w/more technology and longer maturities)given the higher revenue per acre,higher profitability vs.soybeans,and whether the competitive environment“holds”through spring.We will be closely monitoring developments into February,the typical period for which the next large round of seed price/mix catalysts occur.Crop Protection Chemical OutlookBased on several adverse weather events affecting global ag markets in 2019,we now forecast CPC growth in the 0-2%range(prior 1-3%).The key variables driving our reduction are:(i.)a weaker than expected NA demand(esp.in soy),(ii.)the extent/longevity of the droughts in NW Europe/Australia,and(iii.)more moderate growth in select areas of Asia(China,etc.).In our view,most of these issues are transitory in nature and“normality”is likely to be the theme for 2020,though we are closely monitoring industry inventory levels especially in Latam.With several product launches in the 19 21 timeframe,we believe the competitive landscape is poised to be fierce,but we ultimately believe the strong will get stronger(we do not limit this comment to IP).We continue to believe sustainable/environmentally friendly products(toxicity,residue,etc.)will expand as a portion of the marketplace,in addition to biologicals growth.Its worth flagging that sentiment for CPC markets appears to be the weakest its been in 19,which should help balance the risk/reward heading into 3Q earnings season.Cautious industry commentary,earnings announcements from Sumitomo and AVD(among others)and general 28 October 2019Agricultural Sciences Sector6concerns about the weather are feeding into the sentiment shift.From our own perspective,we continue to believe 2H19 results will be company specific,w/the key risk being NA demand.The March 19 explosion at the Jiangsu Tianjiayi Chemical Company reignited concerns earlier on in 19 regarding environmental and safety measures at Chinese chemical facilities,and are still driving concerns about the production and availability of raw materials for the ag chemical industry.While Chinese environmental/safety concerns(facility shut-downs,inspections,disruptions,etc.)remain a key issue for the global CPC industry,we believe the risk is finally beginning to wane vs.our prior concerns in 18/1H19;however,we will still be keeping close tabs on the still evolving situation.Investors will likely continue to hear CPC producers discuss diversifying AI/input procurement over the next several years,with new facilities/expa