What's in Store for the Fertilizer Industry? 27 comments
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After being an active trader in stocks related to the fertilizer industry for the past three years, I have recognized some interesting factors that have had a huge impact on the price movements of these companies' stock prices.
Since the stock price of listed companies in the fertilizer industry peaked in June, it has slumped by approximately 30%. In the same period, the fertilizer industry has experienced 15% higher prices for the fertilizer UREA (same for CAN, Amonia etc). With the fertilizer price booms, we also are watching the prices of oil and natural gas falling sharply, which means higher margins for the fertilizer producing companies. They are reaching all time high profits for their products. Why is this so? Why does the stock price of fertilizer companies fall when they experience higher prices for their products and better margins?
I believe one answer is the food prices ("of course", you might think, but few people care about it on a daily basis). You'll find a high correlation between the corn price (same for wheat, soybeans) and the stock price of i.e Agrium (AGU), Mosaic (MOS) and Potash (POT). It is important to watch the food prices closely. That is why the global sell-off in commodities has also hit fertilizer stocks hard.
In the long term, I believe that fundamentals will win, and last week's news about China hiking and expanding their export taxes on fertilizer will yet again boost international fertilizer prices and hence give better profit. It's a proof that the demand is still strong and supply is still insufficient
And, while the oil price keeps falling, I will keep on buying. Remember, lower oil and natural gas prices gives lower costs.
The global bull run is not over yet!
Disclosure: none
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This article has 27 comments:
Their P/E (as on bberg) is about 49 and 44 respectively while the Est 1Year P/E is 13 and 10. If that is any indication the street is expecting a 4x increase in EPS number from these companies.
There is no major volume expansion coming on-line in 2008 or 2009 so that means that 4x EPS increase should come from margin expansions. Seems too aggressive.
The dynamic of higher protein diets for a billion+ folks is powerful, amplified by non-sensical mandates for the conversion of corn to dirty fuel.
S & P - btw reiterated target of 280 after last earnings call.
The elephant in the ointment is the impact from the union strike.
Looks like a pretty good entry...
Good Huntin'
fc
fancam.com
jimrogers-investments....
POT is at the 38.2 retracement
the 50% is at $136 and
the61.8% is at $111
Other levels suggest $111 is the greater possibility
I'm skeptical of any claim that total human food demand has fallen. Consumers might be moving to cheaper alternative foods though - more or less processed, whichever's cheaper.
I think the price of POT has just gone in lockstep with the general trend of commodities (gold, oil, etc) and that is primarily a function of hedge funds dumping commodities and commodity-related stocks in a very big way recently, primarily on dollar strengthening. Many people can't imagine how much money these funds control and how much they influence market prices.
It's pretty simple. When the dollar weakens the hedgies pile into commodity-related investments to (duh) hedge inflation, driving prices into euphoria-inducing regions and when the dollar strengthens they pile out, causing much fear and uncertainty to us regular Joe investors who hold commodity-related investments and think about things like company performance or commodity fundamentals (which do remain positive, I believe).
So what we are seeing now with corrected POT and commodity prices should turn around when the dollar resumes it's decline and the hedge funds pile back in again. However, that may take some time. The better part of a year, I believe. Plus or minus. The dollar (and commodities) will trade in a sideways range during this period.
Patience and faith is required of us long-termers who do not have the inside dope on what the hedge funds or the centrals banks are going to do before they do it.
And the difference between the 70's and now amount to 3 billion extra mouths to feed. And from what I'm being told nitrogen in particular from China was slowing considerably before summer (based on what I saw from the pre-Olympic sailing invasive species hyper-population no wonder if they are consuming nitrogen domestically). Employing nitrogen-fixing species in farming is a useful but slower process and not practical for corn.
And if prices fall won't that drive supply out of the market too? As long as we are stuck with ethanol as a "solution" fundamentals IMHO will prevail. The buy signal? Mirror mirror on the wall.