Beating a Dead Horse - Fertilizer

First, I have sold 10% of the Mosaic (MOS) position @ $104 simply because we have a 30% gain from the $80 "false bottom" created last week after earnings: $80 -> $104 in 3 days. I won't be selling any more until we go higher - as I stated 2008 estimates are just plain wrong and need to go up for the group. As they do, so will stock prices. I expect a carbon copy with Potash (POT) when it reports earnings - and as I stated this $80 price in Mosaic was simply a shake and bake move and citing "sulfur costs" as a reason to drop the stock for a few hours was just a convenient excuse. If you have confidence in the fundamental story, when the stock price disassociates from reality you have the opportunity for out sized gains.

Further evidence for the bull market in agriculture with Friday's USDA report. So while the media obsesses with crude at $91 or $101 or $111, they need to be looking in the grocery aisle. I continue to believe people are missing the forest for the tree. Tomorrow and Wednesday we will have bogus CPI/PPI inflation figures showing 3-4% price hikes. Meanwhile we'll snicker.

• Soybeans jumped to a record, corn reached an 11-year high and wheat rallied after U.S. government reports showed that production is failing to keep pace with rising global demand for food and biofuels.

• The world soybean harvest will fall 6.5 percent this year, U.S. corn inventories will be 20 percent less than estimated a month ago, and wheat farmers in Kansas and Texas planted less even as the price of the grain doubled, the Department of Agriculture said in separate reports today.

• Tighter supplies will boost the cost of feed for hog processor Smithfield Foods Inc. and poultry producer Pilgrim's Pride Corp. General Mills Inc., the second-biggest U.S. cereal- maker, said today it raised the price of Pillsbury refrigerated dough to offset higher wheat costs. Globally, food prices have doubled on average in the past five years, UN data show.

• ``We can't grow our way out of this grain-shortage hole,'' said Jim Gerlach, president of A/C Trading Inc. in Fowler, Indiana. ``We'll have to price our way out. I'm bullish until furter notice. We'll see ups and downs, but the trend will remain higher.'' (read: even more inflation in the future)
• Soybean futures for March delivery rose 38.5 cents, or 3.1 percent, to $12.9875 a bushel on the Chicago Board of Trade, after earlier reaching a record $13.1025. The last record was in 1973. Futures gained 78 percent last year, after U.S. farmers planted the fewest acres in 12 years and sowed the most corn since 1944.

• Soybean oil, used to make cooking ingredients and biodiesel, also reached a record in Chicago, and soybean meal used as animal feed touched the highest price since June 1973.

• Corn futures for March delivery rose the Chicago exchange's 20-cent daily limit, or 4.2 percent, at $4.95 a bushel, the highest for a most-active contract since June 1996. Prices have surged 44 percent in the past three months, even after the U.S. harvested a record crop.

• Corn supplies on Aug. 31 will total 1.438 billion bushels, down from 1.797 billion forecast in December, the USDA said.
• ``The battle for grain acres is just starting to heat up for the year,'' Credit Suisse Group analyst Robert Moskow said in a note to investors today. ``A precarious situation gets more precarious.''
• Corn is the biggest U.S. crop, valued at a record $33.8 billion in 2006 with soybeans in second place at $19.7 billion, government figures show. Wheat is the fourth-biggest crop, behind hay, with a value of $7.7 billion.

I encourage readers to really read each bullet point; the rate of price increases seem unreal on first glance. There are only so many acres to farm - each acre chasing after subsidized corn, is 1 less acre for minor thing like food we can EAT. Corn ethanol subsidies are the classic case of unintended consequences - unfortunately the costs here will be global and hit those that can least afford it the hardest. Global demand from newly minted middle class (for better foods and meat based products) along with US misguided corn ethanol proposal is just a perfect storm. From a political and societal standpoint, we will see serious fallout from this - think of people on food stamps, people on fixed income, and the effect on food banks. People currently affected don't have much of a "say" in the political process (i.e. they don't contribute money since they are working poor) - but it will move upstream and effect more and more strata of society. Only then will it "matter". Until then? "Let them eat cake". (and more subsidies to corporate farmers)

Long Mosaic and Potash in fund and in personal account