Potash and Agrium: Possible Agriculture Shorts?

I'm still interested in shorting someone in this group; but hopefully someone who is not the target of a buyout. I suppose the obvious candidate is Potash (POT) again.

More bad news continues to leak out in this sector; on one hand this steady drumbeat of negative eventually will be "in the stocks" - for example Agrium is not down on this news of price cuts; on the other hand, I'd like some hedges to the downside and some of the charts are quite poor. Unfortunately, the knee jerk reactions to earning reports are skewering charts for now, so might just be better to stick with index shorts or some index puts as insurance.

Agrium (AGU) price drop via Reuters

• Soleil Securities said on Friday that potash prices were set to skid about 25 percent, after he said that Agrium Inc (AGU) said late on Thursday that it cut U.S. potash pricing. Soleil analyst Mark Gulley said Agrium is dropping its U.S. list prices around 25 percent, in line with price cuts by Russia's Silvinit SILV.RTRS and Germany's K+S.
• "The Agrium price cut cuts deeper because Agrium is a member of Canpotex, along with PotashCorp and Mosaic," Gulley, said in a note to clients.

Potash (POT) says inventories continue to climb via Reuters

• North American potash inventories continued to rise in June and are currently 115 percent above the prior 5-year average, the world's largest fertilizer producer Potash Corp of Saskatchewan (POT) said on Thursday. Potash Corp said North American potash inventories rose by 152,000 tonnes in June.
• Inventories of potash have risen steadily through the course of 2009, despite major production cuts, as farmers concerned by exorbitant pricing and hurt by the credit crunch have deferred application of the key crop nutrient.
• Roughly 40 percent of global potash production capacity has been idled since the second-half of 2008, but despite tight supply-side management, North American potash inventories have risen steadily in recent months as global potash markets have remained frozen since the end of 2008.
• In a group of graphs posted to its website late on Thursday, Potash Corp also indicated that potash spot market pricing remained flat at about $700 per tonne in June.
• Analysts expect potash markets to thaw and demand to pick-up again, once Indian and Chinese buyers sign annual contracts with major suppliers like Canpotex and BPC, as these contracts will set the floor on potash pricing and spot prices will adjust accordingly.

Disclosure: No positions

Comments

[ain't no fo...:]

POT looks like a tough call here.

Since July 1 its been bumping up against its 20 day EMA and failing, and its 200, 50 and 20 EMA's are stacked upside down offering hard resistance for a big up move.

On the other hand its recent action also indicates its possibly forming the right shoulder of an inverse H & S bottom.

If it were up to me, there would probably be more promising targets of opportunity until this thing gets resolved.

Jul 20 12:00 PM

[Stez:]

This sector is so volatile you need nerves of steel.

Maybe using some option play is best.
The index etf's are obviously not anywhere near as volatile.

Buy-write's come to mind maybe a small position long term on the stock and sell the index. May not earn a lot from it but can just chip away and brings down the aggregate cost of the stock. While potential losses should be kept within discernable limits.

Jul 20 01:35 PM

[Nathaniel C:]

I would short these names if stocks traded on their own merits. But in this market they dont. All it takes is the dollar to be down 0.3% against the Euro and oil surges 4-5% and all of the commodity stocks go up thanks to program trading. Potash and the other Ag names are not doing well but are being artificially propped up because they are commodity stocks.

Jul 20 04:52 PM

[Belome:]

These companies are choking on high priced inventories from last year and are hoping they could pass them along to the farmers... well suprise!... the farmers told them to stick it. It is now much easier to do when corn is now back down at 3.20 and not 4.50. This oligopoly needs to be punished for geetting greedy last year, and they will..... eventually. This is also why I am bullish corn from these levels.. the lower inputs are not supportive of a record yield that the market has already dialed in.

Jul 21 12:45 AM

[AndrewBaker:]

It got ahead of itself a couple months back, but it's come down a lot from previous highs and the recent lows are forming a dynamic support line, in my view. The moving averages aren't saying much but if it bounces off of its bottom Bollinger band and can get through resitence at 96, then I see it getting back up through to 110. So I wouldn't short this one right now.

Longer term and fundamentally, it's the biggest in a good market. All crops need potash fertilizer to get the best from them, and we all need to eat, even in a recession, and food has no substitute.

Disclosure: I'm long POT.

Jul 21 12:22 PM

[Fighting Yoda:]

For all commodity bulls this should be an apt lesson - we had an unsustainable bubble that burst, commodity demand and prices fall in a recession. I think Ag and fertilizer prices will fall a lot more - there simply is too much supply, despite huge production cuts.

Jul 21 01:33 PM