Options Traders Call Potash the "New Crude"

Is Canadian potash, as some analysts are postulating today, “the new crude?” One day after shares in the Potash Corp. of Saskatchewan (POT) soared to record highs on a tripling in the price paid for the coveted crop nutrient by Chinese buyers, the company’s stock price fell back about 3% to $192.22.

The development follows news breaking during the Asian session that China will hike export tariffs on most fertilizers in a bid to keep ample supplies for Chinese growers at the height of the crop season. Implied volatility on Potash shares soared more than 18% on the session as option traders are now pricing in 22% more wiggle room than they has already been charted in the stock’s past trading behavior.

A trader’s market has emerged in the April 200 calls, with traders eagerly taking both sides of the bet as to whether Potash can pull off a close above $200 by Friday. Fresh and frisky two-way traffic is also observed at the May 220 strike, where the $6.00 price of the contract reflects a slightly better than 1-in-4 chance that Potash shares can breach the $220 mark over the next month.

Comments

[raman kandola:]

POT's Canada is like Saudi's Saudi Aramco, looking to see thing stock to new high's. But I highly doubt that it would pumo another $30 points in less than a week. It has been up over $45 point in less than 4 weeks. Some times you need to be realistic.

Long run this would be over $250.

2008 Apr 17 03:19 PM

[DSX Lover:]

SHORT SHORT SHOT. Words from Carter Worth in Fast money. Too much gas too fast. I don't see them raising prices next year, and once the commodity Bubble POP's no way this company can sustain existing P/E.

2008 Apr 17 06:42 PM

[Ames Tiedeman:]

The 10 year chart on this is worth looking at.

2008 Apr 17 07:12 PM

[Gunslinger:]

1. About those May 220s - On my watch list all day. Traded over 17,000 calls today, while the open interest was under 1000 prior. Ding ding.

2. Volitility is because of earnings April 24th. The street cannot keep up with the numbers of this company (and because they would be viewed as crazy by outsiders if they publicly tried).

3. HA HA HA Carter Worth. You're quoting him from that Fast Money gig last night? His mind can't handle earnings growth. His expertise lies elsewhere. You must have seen his pan on GOOG during the analyst interview. Great call on GOOG Carter!

4. Also, DSX Lover - if you can't see potash prices rising next year, you need to do a lot more research on supply & demand. In fact, any research would be an improvement. Belorus head already said that he sees $1000 soon. I'll let you figure out if that's an increase or not. By the way, what is POT's existing PE? Using trailing #s would be quite silly, or you'd have to say that POT's growth rate is well over 100%. Which would make the PEG ratio what?

2008 Apr 17 07:45 PM

[Kobayashi Maru:]

Spot on Gunslinger! Getting tired of the talking heads that haven't done their research.

From what I can see in the Wednesday press release, POT is essentially 'sold out' of any further appreciable capacity for the year.
The beauty is they sold out at 3 times last years prices.

Uralkai in Russia already indicated the $1,000/tonne number for spot is likely - as Gunslinger noted.

Unlike Aramco, people don't need to drive their cars. They do need to eat. China stepped up to prevent to food riots that are going on in the Phillipines and elsewhere - they understand the economics.

TTM PE's are meaningless - this stock is going to be the one that breaks the rules of technical charting. Rise $14 in one day and only give back $3.71 the next? Hyperbolic, parabolic - either way, it's getting my systolic going!

2008 Apr 17 11:23 PM

[Cormack:]

Forward guidance will be given for the next sequential fiscal quarter and perhaps also the rest of FY08 at the most but not FY09. The key question then becomes does there need to be a material upward revision to next quarter's Reuters/ First Call consensus estimate based on where those estimates are right now versus where they should be based on current potash prices...

2008 Apr 18 12:02 AM

[Gintaras:]

Well, I just buying the POT, MOS, AGU, MON, SYT systematically on their larger pulbacks. Food is essential for survival the way it is air, water, except that fresh air is not traded in stocks, water plays are traded, but still they are not as acute as food since water can be purified, desalinated, however, food essentially is GROWN. There is no food supply better growing without applying due seeds, plants, fertalizers, herbicides, inseticides, water and turn to God for the Sun shine and rain to be supplied from the Sky. ...I just keep buying food shortage plays...POT, MOS, AGU, CF, TNH, MON, SYT....

2008 Apr 18 03:30 AM

[User 131324:]

I think everybody is buying the same ones mentioned by Gintars. You know what happens when the massess agree to gang up on an industry- just like the tech boom several years ago.

2008 Apr 18 12:15 PM

[Cormack:]

This thing is going to blow through 300 in the next year. Material upward revisions to forward estimates are coming.

2008 Apr 18 03:33 PM

[beachtango:]

I just sold my DIA-diamonds, GE, and SPY-spiders so i could buy POT, MOS, and AGU, and a tiny company called EDEN. Next week it's MON, and CF, etc...We all EAT to live...famines and food shortages are nothing new, but their severity is getting worse. China and India now this. watch their bidding to increase for next year on prices of fertilizer ingredients. Meanwhile monsanto isn't far from running the show from the seed and pesticide angle 100%...GO ag stocks....

2008 Apr 18 06:34 PM

[mythoughts:]

I agree the fertilizer stocks are great for now and at least next year. As an alternative you might look at the food these fertilizers are used for (corn, wheat, soy, rice) and buy futures through DBA.

2008 Apr 19 12:29 PM

[thinking ahead:]

As good as the economics for potash look (both the fertilizer and the stock), phosphate fertilizer is even more necessary and scarce. The pricing power of these fertilizer names is nearly as good as the deepwater drillers. The trouble is that the drillers can show multi-year contract backlogs, while the fertilizer companies must rely on usage forecasts derived from crop estimates. So the numbers are less visible than the drillers, but that uncertainty could swing either way for the Ag companies profits. I'm nervous but feel I cannot be left behind on this play.

2008 Apr 21 03:33 PM

[Gunslinger:]

Only took one week...

$1000 potash from Uralkali (as previously noted) - although inclusive of freight.

"The new price level in Asian markets will be $1,000 a metric tonne cost and freight for Standard MOP."
www.forbes.com/markets...

UKRA.IL (long)

2008 Apr 22 08:18 PM

[Gunslinger:]

May 220s... closed @ 14.30

Well over a double in 3 days.

2008 Apr 22 09:35 PM