Potash: Will the Death of K+S Benefit the Sector?

Over the past few months, pricing for potash and other fertilizer products have been coming down. This is due not only to lack of demand, but because buyers are in the drivers seat and skillful at negotiation prices. The news about K+S appears to confirm the trends that we have seen with potash and fertilizer companies. Said another way… they are not doing so well.

As such, we have been shorting and covering Potash (POT) successfully between $101 and $85 recently.

According to Bloomberg reports:

K+S AG, Europe’s biggest potash producer, needs to sell shares as early as this year to bolster finances after a slump in demand for the crop nutrient almost wiped out profit, UniCredit analyst Jochen Schlachter said. A rights offer would help the company retain its credit rating level after tumbling orders weighed on third-quarter earnings, Schlachter said. K+S’s debut bond sale in September will give the company confidence it can convince equity investors to come forward with fresh funds, analysts said.

Yesterday morning Potash was down by about 2%. By mid-day it started a mysterious rise into the afternoon. Hearing the strength in Agriculture names is being attributed to positive intraday comments out from a boutique firm on POT, MOS, AGU, CF, TNH. We are exiting the position Potash now, which we added Wednesday. The cover was close to the same price that we shorted and believe that there may be more to this story and are not interested in getting caught in a short squeeze.

The move on volume was a signal that there is more to this story. Perhaps the rumor-mill is talking about takeovers again – like we saw with Mosaic recently. Either way, it is a good time to reevaluate this name and step aside until whatever is brewing passes.

Disclosure: Horowitz & Company clients may hold positions of securities mentioned as of the date published.

Comments

[User 422955:]

Another misleading SA headline: Where is the mention of, not to speak of evidence for, the "death" of K+S?

Nov 13 06:47 PM

[Mentor:]

You should keep your article only about potash, it's true that pricing for potash and other fertilizer products have been coming down, but potash is different than other fertilizers such as nitrogen or phosphatic fertilizers. While potash consumers were waiting and/or bargaining the prices, consumers of other fertilizers were dormant.
Since Q3/09 the situation has changed, now a lot of dap, map, tsp..Nitrogen, or rock phosphate volumes are moving with prices with fair margin, no matter if the price is far from the ones of Q3/08.
If you want to benchmark, take into consideration prices of Q4/07 and Q1/08.
Potash producers market strategy is far different than the strategy of nitrogen and phosphatic fertilizers producers.

Nov 14 05:07 PM