Wednesday, April 2, 2008

Potash Makers Already Talking $750; Up from $625

The amazing ever upward moving in the potash market just continues.... just last week we had the $625 price area breached, first with the Russians [Mar 26: Russia-India Deal Boosts Potash Price Forecasts], than the North American cartel [Mar 27: Canpotex Potash Contracts Secured with India @ $625], and now a whole week later we are already discussing the $750 range. Amazing.

Now keep in mind we cannot directly compare prices in India with China, as the Indian price includes shipping (which is roughly $125/kg in today's era) so effectively it is $500 for the product, $625 to $750, stripping out the $125 shipping in both scenarios, is still a massive increase. And this is why, once people overreact one way or the other to Mosaic's (MOS) report Friday, I'll be looking to quickly scale back in. Granted we will have more major overreaction in a few week's to Potash (POT) earnings (my god the sky is falling! input prices going up! whine! cringe! weep!), but as I've said in my piece - these input costs are being passed right along to the end customers. But you can't discuss with a panicked herd, so I am going to remain cautious until I see the Friday reaction. But the fundamentals remain... scratch that... get better by the month. Now we just have to wait to see how the herd of sheep react... and then keep on trucking on this amazing secular growth story.
  • The huge price jump for potash exports to India is a sign of things to come for China and other buyers for the rest of 2008, the chief executive of Russia's Uralkali, one of the world's biggest potash producers, said on Wednesday.
  • Vladislav Baumgertner told a BMO Capital Markets fertilizer conference that spot market prices quickly jumped to $750 per tonne from $625, effective June, after contracts set last week between India and Russian and Canadian producers.
  • "A new price level definitely higher than $750 might be seen already in the third quarter," Baumgertner said. (are you kidding me? really... are you kidding me?)
  • "In the short term, our goal is to eliminate the significant Chinese price discount relative to the spot markets and the Indian contract," Baumgertner said. (Go Vlad... go get 'em tiger)
  • The head of Canadian potash producer Agrium Inc. (AGU) told Reuters he expects China will end up paying the equivalent of India's contract price of $625 per tonne (landed), which is more than double last year's Indian contract price. (that would be $500, which would be a huge win...just huge)
  • "The world hasn't waited for China. The market continues to move," Doyle said. (go Bill, tell 'em)
  • Potash producers said they don't expect capacity expansion to overcome demand in the foreseeable future because deposits are rare and mines require huge capital costs." (I try to tell everyone this Bill, but instead they sell off your stock and others because of whiny natural gas increases... or because US farmers will produce 8% less corn which is just an estimate anyhow.... whine whine whine.....mommy hold my stock certificate please and wipe my nose... soybeans and wheat and lions, oh my.... one day they'll understand the massive earnings leverage)
  • "A potash greenfield mine is a massive undertaking, and despite the noise and attention being paid in Saskatchewan and Russia, still no significant greenfield projects have been announced anywhere in the world today," Doyle said. [Nov 16: Potash Expands Mine for $2 Billion]
Again, clearly an amazing story. And the market in it's short sightedness continues to miss the forest for the trees. Unfortunately, the way speculators light forest fires we have to walk with caution through the forest, because fast money traders whose idea of long term is "tomorrow" dominate the action and can whipsaw us to quick losses.

I already mourn my loss of fertilizer exposure... only 24 hours more... I pray I can hold out.

Here is a link to a pdf file for Potash's CEO's investor presentation today

Long Potash, Mosaic in fund; long Mosaic in personal account

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