What is your view on demand?
“The “Ag” sector is on fire,” says Wilson. “And I think it’s going to stay that way.”
What supports that?
“If you look at the fundamentals of the market, supply has not kept up with demand. It’s a global play. It’s not a North American play,” replies Wilson. “The farmer just hasn’t been able to produce enough for the people who want to eat it.”
The risk is that there will be excess planting due to ethanol. Are you concerned?
“Not really, ” says Wilson. “The world is going to suck it up. If corn prices stay low people will switch to soybean and it will all work it’s way through.”
Do you hedge your nitrogen production with natural gas?
“Nitrogen only represents around 25% of our business,” answers Wilson. However, on the nitrogen side 90% of the cost is gas. So you try to manage gas.. and hedge to some degree and lock in some margins on a short term basis.”
How does drought affect business?
“Weather has a major impact,” says Wilson. “But if you look at it on a global basis you have good weather in one part of the world and bad weather in another.
He adds, “And the expectation is the USDA will come out late this week and bump the crop a little.”
Does that make you optimistic going into the next 12 months?
“We’re optimistic going forward, simply because if you have higher yields it takes more nutrients out of the ground and the farmer makes more money. (Consequently) He wants to plant more and use more chemical and seed," says Wilson.
By planting corn on land that’s already yielded corn, are farmers reducing nutrients in the soil?
“When you look at farmers planting corn on corn versus rotating crops – the reason they rotate is primarily from a pest pressure point of view,” explains Wilson. “So if they don’t rotate they’re going to have pest pressure. And if they have pest pressure.. we supply pesticide. So that plays into our company as well.”
Is there an issue with farmers chasing the corn price?
“Corn pricing is going to work it’s way up to $5 over the next couple of years according to the USDA. That’s quite aggressive.” says Wilson. “If you see a strong yield, I think corn prices will fall off… and you’ll see the farmer move away from corn and into soybeans.
He adds, "And if he moves too hard (into soybeans) corn prices will pop and he will go back.”
Dylan Ratigan asks the guys what they think of this stock?
Jeff Macke says the stock is a hold.
Pete Najarian likes this company as well as Mosaic (MOS) and Terra (TRA).
Guy Adami also likes AGU.
Eric Bolling adds crop rotation means farmers need more of what AGU sells.
> The Fast Money Ag Play