May 30, 2013

Fusion Stock Comments
AGRICULTURE - FARM UPDATE
We Would Own: AGU, AVD, CF, CORN, MON, MOS

SUMMARY: As the season progresses, we see corn production estimates declining, and corn prices declining. Indeed, the early information suggests yields will be less than government forecasts, and that the USDA estimates will decline starting in June. Higher corn prices and increased worries about yields should drive accelerating sales of fertilizers, pesticides and higher yielding seeds. OVERVIEW: With favorable weather last week, 86% of the corn in the US was planted. However, this is still behind the historical pace, and it was just reported that only about half of the crop has emerged, when it should be over two-thirds by now. With a shorter growing season, many farmers on the remaining 14% of the corn acreage may switch to soybeans, which require less days. Weather this week has not been as cooperative for planting, perhaps further encouraging soy switching. And some acreage could never be planted if farmers opt for a Preventive Planting insurance claim, given the heavy rain seen this past week in key areas of the Corn Belt. In fact, some farmers may replant damaged corn crop, further driving sales of input seeds and chemicals. Delayed planting can also lead to delayed canopying, which can lead to moisture loss which hurts yields. The wet spring also should lead to more side-dressing of nitrogen fertilizer as well, tightening prices. Finally, ethanol production has surged to pre-drought levels, further increasing demand for growth when worries about supply are on the increase. Indeed, corn prices have started rising, and the bear case looks increasingly unlikely.

IDEAS: Corn Prices (CORN) – Commodity players can play the crop directly, but for equity investors, we like this ETF, which averages several futures contracts. It has started to rise off the recent bottom, and while it is starting off a slightly higher base than at the beginning of last year’s drought, we think it can rise as high as last year’s $53 high. Indeed, last year the surge was from June 15 until early September, right when the USDA started to bring its yield estimates down. See technical chart for CORN on page below.

Fusion Analytics Research Partners LLC

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May 30, 2013

Fusion Stock Comments

Tecrium Corn Fund (CORN) – Technically, CORN has set a solid low at support from last year’s breakout (green band and arrows). This floor was tested on numerous occasions with buyers stepping up at every time. Now CORN has gapped up and broken though its downtrend line (red line) which has been in place for over a year. This is a bullish breakout with initial resistance @ $ 47, then $ 50.

Agrium (AGU) – The Viterra retail acquisition is about to close, which should be quite accretive, and extend its reach into the northern corn belt, where most of the delayed planting has been concentrated. AGU’s crop protection products should sell through pretty well with weather stresses on crops this year. Nitrogen fertilizer sales picked up sharply in May, and orders for post-planting side dressing are picking up through the channel. So we think nitrogen pricing will trend up with corn pricing, and with the stock having sold off sharply after Jana Partners lost the proxy fight, it looks ripe for a rebound, having just come off its strong support level. The next technical stop could be around $100, and we still see $120 in ultimate value here.

Fusion Analytics Research Partners LLC

©2013 All Rights Reserved

May 30, 2013

Fusion Stock Comments

American Vanguard (AVD) – The stock has risen only modestly since we last discussed it, but we think it is a must own going into the growing season. AVD is a pesticide play, and it is too early to worry about weeds and bugs until the corn emerges. However, with increasing yield concerns every week, we expect pesticide sales to surge, especially compared with last year’s drought condition . AVD is a corn chemical play, and corn pesticides are seeing strong demand while the company is gaining market share. In partnership with Monsanto, the company offers products which help control pests that may have developed some resistance to Roundup. Impact corn herbicide is gaining share as well, and margins have increased again to over 44% on strong operating leverage. It now appears that $2.00 is doable this year, and growth drivers could bring this number as high as $2.50 next year, and while it may not achieve a Monsanto multiple, it does not have to in order to reach our $40 fundamental target. Finally, we think AVD would prove an excellent takeout candidate among a dearth of agricultural growth stories in a consolidating industry. In such case, the stock could almost double from here. It bounced nicely off strong support near $28, and we see little further resistance from here to the recent high at $35. American Vanguard – Weekly Chart - As seen in the weekly chart below AVD shares are in a big triangular consolidation, above support (green lines) near $ 28 and under declining peaks (red lines). A breakout from this triangular range would imply a target of $ 42. We get this target by measuring the widest part of the range then projecting it up from the breakout spot. Given the trend prior to the consolidation was up we are leaning towards and upside breakout.

Fusion Analytics Research Partners LLC

©2013 All Rights Reserved

May 30, 2013

Fusion Stock Comments

CF Industries (CF) – Like AGU, this is a great nitrogen play, and as discussed above, we see a rapid tightening of the market, followed by a lot of post-emergent side dressing as yield concerns mount. So we expect nitrogen pricing to improve right when natural gas costs are easing a bit during the cool spring. The company is only 25% through its large $3 B stock repurchase program, and we expect them to be aggressive down here. CF stock has bounced nicely off the oversold bottom, and does have some resistance at $210 to get through before it has a seasonal shot at its $230 high.

Monsanto (MON) – The seed leader raised its guidance for the quarter on strong seed sales, but it is still slightly below consensus, as analysts play the game of trying to stay ahead of the typically conservative management. But the full year range was brought up 10 cents at the low end, and importantly, the company has an early outlook for mid-teens EPS growth for fiscal 2014, which essentially brackets consensus. And this is despite higher seed production costs due to last year’s drought. Given its conservatism, we are confident in $5.50 for the fiscal year ahead, which includes 10 cents for the DuPont settlement. More near term, MON can benefit from both re-planted corn as discussed above, and any switch to shorter-season soybeans, which would favor higher yielding biotech varieties. Glyphosate chemical sales and pricing look strong, and there is already channel filling for the next South American corn planting season, now that soybeans have been harvested. Latin America should be an increasing part of the growth mix going forward as it catches up to the US on biotech. While the stock has sold off a few dollars from its recent $109 high, we think the earnings report next month and the focus on the new fiscal year can bring it toward our $120 target.

Mosaic (MOS) – Mosiac offers a more balanced fertilizer play than AGU and CF, with phosphates and potash complementing its nitrogen position. And its exports are starting to pick up as well, with strength in South America, China and India. With new potash capacity now on, the company’s Canpotex allocation has just increased from 37% to 43%. But the real story remains the discussions with the Cargill family which can now finally begin. As we discussed in a recent note, we think the company has the means to buy back at least 20% of its shares, which would be highly accretive to earnings. The stock recently hit a high at $64, and if it gets through that resistance, we think it gets to our $75 target during seasonal strength.

Fusion Analytics Research Partners LLC

©2013 All Rights Reserved

May 30, 2013

Fusion Stock Comments

Trading Signals and Model Scores

AGU AVD CF CORN MON MOS

Neutral Neutral Neutral Neutral Neutral Neutral

53 65 56 NA 86 86

Note: Trading signals are looking to handicap short to int. term price movements, while the numerical scores are looking at investment horizons. Scores range from 0 to 100, with 0 the worst and 100 the best.

Fusion Analytics Research Partners LLC

©2013 All Rights Reserved

May 30, 2013

Fusion Stock Comments

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