Fertilizer and seed companies will benefit but crop protection companies will be hurt by this year's drought, says industry analyst Mark Gulley, Gulley & Associates, LLC. In his latest look at the ag chemical companies, Gulley tells clients he sees the drought as a "potential negative for crop protection supplies. Drought conditions affect the three categories of crop protection chemicals differently and chemicals applied in the spring have already been used. In-season emergent herbicides could be the hardest hit; if crops aren't growing neither are weeds," he states. "Fungicide sales should be hit since fungus growth is positively correlated with humidity. Insecticide sales tend to be much less affected by drought as some insects can do well in the heat."

Gulley says the drought is a "major positive for seed suppliers. The severe drought is hitting U.S. seed corn and seed soy production hard, limiting seed supply for next year's 2013-14 crop. But it's worst for the small regional seed producers. The majors have good access to winter nursery seed production in S.A., so they can collectively gain share. Seed price increases next year could exceed this year's due to less discounting, especially late-season," he says.

On the crop nutrient side, he says "since there's a solid correlation between crop prices and crop nutrient prices, highest for nitrogen, lowest for potash, fertilizer prices could bottom and begin to firm as the fall 2012 application season approaches. But increases are likely to be limited by the prospect for lower crop prices next years, assuming normal weather," he says.

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