Terra Nitrogen Got Crushed: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of fertilizer producer Terra Nitrogen (NYSE: TNH  ) ended Monday down 10%, hurt by a USDA report showing corn stockpiles nearly 20% higher than they had been previously estimated.

So what: On the one hand, having more corn than we thought we had is bad news for farmers (and the folks who sell them fertilizer). It means we may not need to grow as much, to keep the silos full, as would otherwise have been necessary. Compounding the damage, plentiful corn stockpiles tend to depress grain prices -- draining money from farmers' pockets and reducing their ability to spend money on fertilizer.

Now what: Now for the good news: These things tend to happen in cycles. If grain prices fall in response to the USDA report, these cheaper prices will logically increase demand for corn, and eventually increase prices as farmers struggle to meet the new demand. This will -- again, eventually -- be good news for fertilizer stocks. With Terra Nitrogen shares currently priced at less than 7 times trailing earnings, a buying on the dip today could pay off for Fools able to look out past the end of just this current demand cycle.

Want to learn more about Terra Nitrogen? Add it to your Fool Watchlist.

Fool contributor Rich Smith owns no shares of any company named above. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 05, 2011, at 10:44 AM, pinkyree wrote:

    Are you factoring in the fact that CF has the right to buy in TNH's shares anytime at the trailing 20-day price if they have sold a percentage (20, I think) of the shares they currently hold? I haven't read the disclosure from their purchase of the parent company (Terra) myself, just reports from other bloggers at Seeking Alpha.

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