(The following appeared at CNN.com on April 17.)
The surge among North American railroad stocks Wednesday owed in part to an earnings surprise from CSX (CSX). The Jacksonville, Fla., railroad operator reported a 60% jump in Q1 earnings on rising sales growth. Both columns topped estimates.
CSX said growth in ethanol and grain shipments and increased demand for export coal overcame weakness in automotive and housing-related traffic. Shares rose almost 4% on the news.
But the rail group’s 4.7% jump Thursday was even more firmly linked to a pact between Canadian producers and Chinese importers for potash, a key fertilizer.
That deal, detailed in Thursday’s Industry Themes column, boosted the price for potash headed for China to $576 per metric ton from $98.
The bulk of those shipments will travel from Saskatchewan to Canada’s west coast ports via rail lines owned and operated by Canadian National Railway (CNI).
The news pushed CN more than 6% higher Wednesday. Most of the other stocks in the group also jumped.
Why? Because the leap in fertilizer prices in China reflects similar increases in the U.S. It also suggests rising inflation on a range of things from corn seed to cattle feed.
Railroads stand to benefit as they grab pieces of those price moves at multiple links in the supply chain.
Keep in mind, corn prices, like oil, are partly a function of a weak dollar. If the dollar firms, it could cut into rail margins.
Economic slowing in the U.S. — and potentially China — also could have an impact, as the pace of goods moving to market downshifts.