Wednesday, April 23, 2008

Potash Hits $1000 on Spot Market

And the hits keep on going... note, I continue to love the fertilizer story long term but we have multiple risks - in increasing order of probability
  1. All the stocks are overextended as heck on charts
  2. A lot of newbie investors who jumped in of late, who have very little conviction and will sell at first drop of -7% in their trading account
  3. If, as I expect, Federal Reserve finally says something about inflation and signals they are done with cutting rates after next week, the dollar finally bounces - at least a little - this will hurt commodities
  4. If Western governments have any moral backbone they will at least jawbone pulling biofuel subsidies... this would cause backlash reaction in fertilizer even though biofuels are just a small piece of the puzzle. (again this is a minor risk at this point, especially with US elections coming but maybe Europe will react first?) While the biofuel situation is not the major driving factor of agflation that does not matter - perception is everything and go back to point (b) a lot of new investors to a hot sector who know little about the long term situation and just are going by sound bites "rice riots" "fertilizer is hot" "Neil Cavuto even likes fertilizer" - they will panic.
It reminds me of solar in fall 2007 when all the hot money flew in and destroyed all those late to the game within weeks of when the "new crowd" joined the party.

And as a cherry on top there is always a neat little signal that its getting frenzied - I wrote about this in November [Nov 10: Chinese Big Caps Struggling Since Petrochina Shanghai Debut] Wouldn't the Intrepid Potash (IPI) IPO just fit perfectly with all these other short term tops I listed below? I got bearish on all those groups once we saw those "events" and within days in some cases we began quite savage selloffs. It almost seems ... too convenient...

Sometimes, in retrospect, we can look back at a moment in time that seems either outrageous or telling, and see a warning signal is flashing in the middle of a mania. I have pointed this out in previous entries ranging from

  1. The Macau gambling stocks (Steve Wynn cashout), on the heels of private equity 'cash out' via Blackstone IPO (BX), on the heels of Sam Zell cashing out at the top in commercial real estate during the private equity feeding frenzy [A Top in Casino Names?]
  2. The Chinese small cap bubble frenzy earlier in October [This Day in Bubbles Series]
  3. The dry bulk shipping frenzy [A Chorus for Dry Bulk Shippers - Enough Already?] and [A Near Term Drop in Dry Bulk Shippers?]
  4. And our most recent frenzy, that of the solar companies [Closing LDK Solar on the Mania that is Solar] and [Suntech Power Up 8%.... on a Downgrade]
The fundamentals remain tremendous in agriculture, but nothing straight up; the reaction tomorrow to Potash's (POT) blowout earnings will be very interesting - everyone knows the numbers will be tremendous but how will the stock react - once EVERYONE knows something there is very little "surprise"... or maybe these are just ramblings of an investor "wishing" the fertilizer stocks would fall 30% so I can load up (again). :)

But here are more fundamentals to whet your appetite
  • Russian potash miner Uralkali (URKA.MM) has said it will charge about 50 percent more for spot sales of the mineral fertiliser to Asia from July 1, citing tight supply as global demand rises.
  • Uralkali (URKAq.L) said its export trader, Belarusian Potash Co (BPC), would raise its spot price to Asian markets to $1,000 per tonne on a cost and freight basis.
  • Prices to Brazil from July 1 would rise to $1,000-1,010 per tonne, an increase of 65-66 percent on the current quarter.
  • Moscow-based brokerage Troika Dialog said the Chinese and Indian contracts had absorbed a substantial proportion of world supply, meaning less would be available for spot sales to Brazil and Southeast Asia. "There is a supply-side deficit prevailing on the global potash market as the two largest consumers, India and China, have both recently concluded yearly agreements for supplies of potash (at conditions almost certainly dictated by producers)," Troika said in a note.
Long Mosaic, Potash in fund; long Mosaic in personal account

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