Potash Continues to Shake off Bad News

As we wrote in Tuesday's piece, it is interesting to see the fertilizer stocks "relatively" shake off some quite bad news of late [Mar 4, 2009: Potash, Mosaic, Intrepid Potash Come Under Pressure After Talk of Uralkai 25% Price Cut]. There is a lot of Mergers & Acquisitions activity in the space [Feb 5, 2009: Agrium Launches 3.6 Billion Bid for CF Industries] [Jan 16, 2009: Congratulations Terra Industries Holders], so that might be helping create a floor under the group and quite frankly, even if earnings estimates drop significantly further into 2009, this is not a particularly expensive sector.

That said, we have another cut in production out of Potash (POT), and I continue to smirk a bit as most of the companies I follow closely continue to use the same language regarding "it's a short term issue and the next quarter everything will be fine." It's been about 2 quarters of this so far - we'll see if they change their tune. With that said, agriculture is my favorite "long term" sector and this is the easiest way to play that very long term thesis.

This does highlight another theme: when stocks (or markets) want to go up, there is rather little news flow can do (aside from completely out of left field news events) that will dissuade it. In a move upward,you want to see bad news ignored, as all things being equal, that is bullish.

Via Reuters

• Potash Corp of Saskatchewan (POT), the world's largest fertilizer producer, plans to further curtail potash production after recent industry data showed that North American potash inventories have risen. The output cuts reflect a continuing near-term drawdown of inventories as customers work through stockpiles built up before the global economic crisis hit, Potash Corp said in a statement posted to its website on Monday.
• The company said it plans to reduce 2009 potash production by an additional 1.5 million tonnes, bringing the total expected curtailments of operational capacity this year to at least 3.5 million tonnes.
• Potash Corp said it still expects a strong rebound in potash demand in the second half of 2009 that should continue into 2010. (of course)
• The latest data from the Fertilizer Institute indicates that potash inventories at North American producers are 42 percent higher than the previous five-year average. (not good) North American potash shipments in both domestic and export markets were nearly nonexistent in February, down 80 percent from the year-earlier level to another record low of 200,000 tonnes, Bank of America/Merrill Lynch analyst Steve Byrne said in a note to clients. (scary bad)
• In a separate research note, BMO Capital Markets analyst Edwin Chee lowered his 2009 and 2010 earnings estimates for Potash Corp and also cut his share-price target for the company.

Long Potash in fund; no personal position

Comments

[Conan the B...:]

An interesting footnote to the Uralkai price cut which drove POT and IPI lower.

When IPI released its earnings, it noted that the price was up 200% from the previous year or around the reduced price quoted for Uralkai.

I just had to make this post. I did not want your 1,000th Article to go by unnoticed.

Mar 19 01:49 AM

[Jordan Rizzuto:]

The grain trade is expecting corn acres to be flat-to-down from last year's planting, which is bearish for potash sales in the near term. Corn is much more inputs-intensive, and grain planting estimates will heavily influence expectations for fertilizer demand. Tighter supplies will indeed be supportive of potash prices, but demand will likely remain soft for the upcoming season. A significant spike in corn prices relative to soybeans would improve the overall fertilizer demand outlook.

Mar 19 10:25 AM

[anopenmind:]

Been almost a year since Jim Cramer starting bashing fertilizers. Other "experts" continue the same drumbeat. No matter how they slice it, dice it; less fertilizer use short-term leads to less crop yield. Crop demand won't = same % reduction in fertilizer use. At some point in time; perhaps not until early spring 2010, but regardless when, there will be strong demand for fertilizers to increase yield to supply demand. What is alternative?

Mar 19 11:18 AM

[MOPGUY:]

Being an industry professional, I think the sheeple need to distinguish between trading and investing as it relates to the potash sector.

Quite frankly, this is going completely to plan and individuals/ insiders who actually do know a thing or two about potash have seen this coming from a mile away and are also able to read between the lines as it relates to what is outlined in the Fertilizer Publications FMB, Fertecon et al (not paying attention to commercial banking analysts, who have absolutely no clue).

That said, this will absolutely drag on longer than most think and secondly, PCS' 1st quarter results are going to be horrific. Will be shorting the hole gleefully at the right time prior to their April 21/ 09 results

Mar 19 11:29 AM

[groty:]

They've convinced the analysts that the inventory overhang will be worked off by 1Q and that production cuts will keep pricing from deteriorating further. You can see the analysts have bought into it by looking at 2Q and full year estimates.

I continue to think MOS and POT management are going to concede on the 1Q earnings call that they've been too optimistic about the rebound. The question is, are investors already pricing in a disappointing 2Q and full year 2009 and they're willing to own the stock at current levels in anticipation of a strong 2010 and beyond.

I obviously don't know the answer. I'm hoping for a flush after 1Q earnings are announced so I can buy the stock much cheaper, but the fact the stock is so reslient in the face of bad news makes me think I may not get that opportunity.

Mar 20 11:28 AM

[Conan the B...:]

Cramer was rather upbeat about fertilizers in general recently, esp. TNH.

But he did not mention IPI at all. When it was in IPO stage he wanted to buy it at $30 last year as it continued up above $70.

This year, not a word. Thank you Mr. Cramer. Why do I thank MR. J.C.?

He loved MMR in the upper teens a few years ago but when it dropped some 30%, there was a deafening silence. MMR went on to triple that low.

I ignored his Pitch but bought on the drop because Moffett was buying and Day was buying. When Cramer said take some profits, I sold 3/4ths, it went up another 20%.

Now its down around 85% from its peak, but Moffett is buying...

Mar 21 11:03 AM

[SHM:]

I can only wait it out I guess being that I bought in at 165! I also was hoping for a drop after 1Q but not sure if I am going to get that chance as well. So do I now buy in while I can and hopefully soon offset my 165 loss? Think I am gonna roll some dice!! Oh wait! I already did that in Nov!!

Mar 26 07:03 AM

[Cem Unal:]

Cramer likes TNH only for his fat dividend but I am not sure he gets the point on MOS and POT. Both of these two have the advantage of owning Potash mines and we all know the time/cost a Potash requires. I think the management of POT was clever enough to cut production to leave prices up. Now we just have to be a bit patient. Q1 will be bad, we all know, Q2 will be more or less ok or same as Q1 but I think it will start going better starting Q3. I would carefully monitor the Potash stocks and the decision of China for the prices of Potash but I am very bullish on agriculture overall and I really like the fertilizer business.

On Mar 21 11:03 AM Conan the Barbarian wrote:

> Cramer was rather upbeat about fertilizers in general recently, esp.
> TNH.
>
> But he did not mention IPI at all. When it was in IPO stage he wanted
> to buy it at $30 last year as it continued up above $70.
>
> This year, not a word. Thank you Mr. Cramer. Why do I thank MR. J.C.?
>
>
> He loved MMR in the upper teens a few years ago but when it dropped
> some 30%, there was a deafening silence. MMR went on to triple that
> low.
>
> I ignored his Pitch but bought on the drop because Moffett was buying
> and Day was buying. When Cramer said take some profits, I sold 3/4ths,
> it went up another 20%.
>
> Now its down around 85% from its peak, but Moffett is buying...<br/>
>

Apr 01 05:01 AM