groty

Adding Some Potash after Goldman Downgrade

Corn inventories remain near record lows. If farmers ultimately decide to shift more production to soybeans from corn next spring, that will set corn up for a nice bull run when traders start discounting a reduced 2009 harvest, which will be bullish for fertilzer in 2010. Even if the global economy is very weak in 2009, ag commodity prices are not nearly as economically sensitive as industrial commodities are. From a macro perspective, ag commodities are far more sensitive to population growth.

The fertilizer guys were unbelieveably rational about capacity expansion when fertilizer pirces went parabolic beginning in late 2007 through this past summer. That means there's not a huge amount of excess supply about to come online as happened when the fertilizer cycle went bust in the late 1990s, causing fertilizer prices to collapse. Fertilizer prices are down, but they are not going to collapse, and that's probably the most important reason why I believe the weakness will be a relatively short lived. I believe it will make sense to get very bullish on fertilzers again in early 2009.

But timing is everything.