Canpotex Port Expansion Is yet Another Catalyst for Fertilizer

I have not written about fertilizer for a while, since the stocks have been digesting some huge gains (and we've been making money in other sectors such as infrastructure, coal, solar, metals). These potash producers still remain as my top holdings, although in reduced exposure. When the charts indicate they are ready to go, I'll be increasing exposure. For now, I'm keeping that allocation in cash, although the stocks are showing relative strength. I've been waiting patiently for a larger selloff in this group that never seems to happen. Hopefully soon. This is still a 5+ year story, until meaningful expansion of potash production occurs.

However,  there will be multiple nearer term risks chiefly (a) Western governments eventually pushing away from biofuels under public pressure as others around the globe starve (b) increased input costs hurting margins and (c) price increases cannot continue at the pace it has in the past, or else fertilizer will be more valuable than Roger Maris baseball cards within a few years.

None of these are game changers, but they can (and will) affect sentiment. And if (b) and (c) happen in the right combination, you will begin to see degrading margins which will also cause panic among the masses. In the end, after a period of hyper growth, these companies are going to be cash flow machines. But lemmings will still panic during that conversion.

However, interesting news continues to percolate, and like much of the world's ports, it appears expansion is necessary to take on the increase in global trade (i.e. voracious appetite of the Far East) I don't have much to add to this story but there are some interesting quotes within. Note Canpotex is a consortium of Potash (POT), Mosaic (MOS), and Agrium (AGU).

• Canpotex Ltd, the export marketing consortium for Canadian potash fertilizer producers, is looking at expanding its Pacific coast port facilities, the National Post newspaper said on Tuesday....is considering a project to almost double its shipping capacity with a $300 million to $500 million project, the paper said.
• "We feel the fundamentals of our business have changed," said Steven Dechka, Canpotex's chief executive, cited in the report. "We feel we now have to be ready for the next 20 to 50 years," Dechka said at a fertilizer conference in Vienna.
• Canpotex is considering 10 million tonnes of new capacity by expanding its terminal in Vancouver, British Columbia, or building a new terminal at the northern port of Prince Rupert or at Cherry Point in Washington state.
• Potash Corp has announced plans to boost its production capacity to 17.2 million tonnes by 2015 from current levels of 10 million tonnes. (7 years to get 70% increase)
• Mosaic plans to have 15.5 million tonnes of capacity over the next 12 years, an increase of 5.1 million tonnes. (12 years to get 50% increase)
• Agrium wants to add about 800,000 tonnes of capacity to its 2.05 million tonnes of production in Saskatchewan, and is also examining whether to build a new mine.

Due to barriers of entry, and slow (and costly) expansion [Nov 16: Potash Expands Mine for $2 Billion], this still remains the widest moat in any "commodity" that I can find. But it's not quite the easy stock story it was a year ago before everyone jumped on board the fertilizer train.
Disclosure: Long Mosaic, Potash in fund; long Mosaic in personal account

Comments

[legmaker:]

Trader Mark, I always like your information. Where and how much do you believe this pullback(when it happens) will be. POT is one of my top holdings and I add to it every time these stocks pull back somewhat. I also own MON and IPI as a speculative potash producer. It is my feeling that IPI has their first earnings session in the bag and will come in with numbers no one expects and this will push the likes of POT, MOS, and CMP up where I would then decrease my position and place the money into royalty trusts until it happens. Your thoughts?

2008 May 22 09:04 AM

[TraderMark:]

Michael, IPI could surprise simply because the first earnings report (or two) after IPO usually analysts are caught flat footed - that said, its rich in valuation.

As for MOS/POT it is all dependent on if they hold their 50 day moving average - both are right near it and have been basing for a month
MOS $120
POT $185 (POT has been relatively stronger)

I see a gap in MOS back near $110 I've been waiting a while to fill

I do believe when oil reverses the whole kitchen sink will be thrown out and we have possibility to buy these stocks lower. I don't know the exact number because the market overreacts. I would just layer in (and out) - in during panic, out during euphoria. These are very long term stories and we'll have many periods of panic and euphoria to benefit from.

I wouldnt classify CMP with the rest - CMP is mostly salt :)

2008 May 22 12:42 PM

[windinmyface2:]

I agree with some of what you say like this (These potash producers still remain as my top holdings), but, when you say, (a) Western governments eventually pushing away from biofuels under public pressure as others around the globe starve) you sound like all the other Democrates with your doom & gloom forcast. You, and others like you, try to start panics, and feed off that. This is the type of news that helps the Democrates try to build a case so they can tell all the other uninformed people how they will save them. No one is going to starve when (Western governments eventually pushing away from biofuels). You use this to try to manipulate the market for your own good. When you say (And if (b) and (c) happen in the right combination, you will begin to see degrading margins which will also cause panic among the masses.) and (But lemmings will still panic during that conversion.) We see more proof of this, but when we see you say (I've been waiting patiently for a larger selloff in this group that never seems to happen. Hopefully soon.), well, that is the proof thrown in our face's, and shows how hungry you are for this panic, and for eveyone to see that has half a brain, and for the few that have crawled out from under the grey cloud you people produce, and have finally seen the light of day. You are waiting for this to happen, but getting tired, and are trying to speed things a long for your own good, and people like you, saying things like you, hurt people like me, and many others that don't have a voice to manipulate things for our own good, and you can hurt the market, and these companies at the same times. Why don't you go out in the street with a big sign saying, THE END IS NEAR !!!

2008 May 23 12:33 PM

[windinmyface2:]

Moron !!!

2008 May 23 12:34 PM

[windinmyface2:]

Yes, I am the long term type of person that people like you hate. In long term I mean 6 months maybe, more or less. I have Potash, and hope for it to continue to climb, in which I will continue to hold, and I will not be one of your lemmings, and sell off in a panic. I have a brain, and will continue to use it.

2008 May 23 12:45 PM

[windinmyface2:]

A perfect example of this is SOLF. Greedy investors manipulated the market on SOLF, and hurt everyone but themselves.

2008 May 23 12:52 PM

[Fear:]

IPI is reporting earnings Monday 10:00 a.m. MT. IPI only supply's about 5 percent of the U.S. needs. There are but a handful of company's that have potash. Yet over 135 countries need Fertiliser and shipping is maxed out. DRYS/TBSI/DSX/EXM the major haulers of dry bulk are booked solid with Coal/iron/cement/coppe... and everyone is maxed out at the moment. The Potash is but one small key but you can bet IPI a 3.5 billion dollar company with 5 mines will skyrocket. In your article above you stated it costs about 2 billion to even open a new mine and IPI has 5 mines and it's reporting it's first earnings. IPI will blow away the estimate and if you don't jump on IPI before 10 am Monday you will miss a hugh profit and for the next 20 years Potash will be just like oil and gold. One thing for certain corn/wheat and soybean needs Potash and there just isn't enough to go around remember when oil was $1.25 a barrel in 1975 well Now food is more important than oil. I hope you understand this is my opinion

2008 Jun 01 02:33 AM

[Fear:]

IPI will be reporting earnings 10:00 a.m. MT. Like you said in the article it would cost about 2 billion to open a new mine and take years. Yet IPI has 5 mines and is worth 3.5 billion. IPI only supply's 5 percent to the U.S. The U.S. imports 85 percent of it's Potash and the price is closing in on 1000 pnt by Dec estimates. A handful of companys supply over 135 countries with Potash. The dry bulk sector is book with BHP/RTP/ and RIO with Iron/cement/coal/coppe... to China and India and this comodity business has just started. 15 years of good times ahead makes IPI/AGU/POT/MOS/MON perfect buys for now and the long term future.

2008 Jun 01 02:39 AM

[Fear:]

I have this to offer I have over 600k in the ag sector. I bought mon 3 years ago, and I own POT/IPI/MOS and yes I have made a Fortune from nearly nothing. I bought TBSI/DRYS/EXM and QMAR but EXM bought out QMAr and I made over 110 percent in that sector in the last few months. I made over 400k there. I am now out of the tanker sector but I am going to pount in 400k more into the AG sector as it rises 100k to each of AGU/IPI/MOS/POT I have a lot of MON already when the ag sector jumps another 20 percent I am putting that money in.

2008 Jun 01 02:53 AM