Comments on Fund My Mutual Fund: WSJ: Lofty Prices for Fertilizer Put Farmers in a ...

An interesting discussion by all. Have been long M...

2008-05-27T16:25:00.000-04:00

An interesting discussion by all. Have been long MOS,POT,& MON for 18 months to 36 months respectively, recently taking profits on all three while maintaining a core position with a stop. My family have all farmed corn and beans in Iowa for generations, and every year it takes a little more fertilizer and a little better type of seed to maintain yields. Can't imagine that would be any different anywhere else in the world. a good story for future growth if true even with recent run ups by the late money, (can't bring myself to say dumb). Normally I would have just taken my profits, paid my taxes and moved to another segment of the market, but I am indecisive here. I am tempted to say that these are "range" trades over the next six to eight months, taking advantage of the volatility to make a little on the 10 percent swings. Points of view.

Additionally my relatives were late getting the corn into the earth because of cold weather and the crop is late coming up because of wet weather. Corn will be great next year as well because when this happens yields are sometimes off.

When do fertilizers become a bubble... that pops?...

2008-05-27T14:32:00.000-04:00

When do fertilizers become a bubble... that pops? That's the question I guess. I think pondering about it, is all fine and dandy, but we really need to see the fundamentals progress in line with estimates. Sooner or later, the estimates will far outpace reality, and then its everyone for themselves. When you hear analysts using metrics like population growth in 2050 to justify estimates, or better yet - CNBC puts on a potash spot price on the screen - you know its trouble. But right now, that doesnt seem to be the case. So, lets just revisit the idea every quarter and be on watch when we enter that no-mans-land of speculative bubbles.

that should read on 2008 estimates they are not ex...

2008-05-27T12:36:00.000-04:00

that should read on 2008 estimates they are not exactly expensive.... I suppose they could trade at 5 PE ratio, the drillers trade for 10-11 many times.

Hi mad,Scarily I know what you are saying ;)Yes I ...

2008-05-27T12:34:00.000-04:00

Hi mad,

Scarily I know what you are saying ;)

Yes I have written that exact same thing - in the end these price rises cannot continue. And when companies stop growing at 200% and "drop" to "only" 50% well you know Wall Street - that is the end of the world.

In the end fertilizer prices will be at elevated levels, and these companies will be cash cows. When that transition happens in reality, when that transition becomes discounted, and what multiple the market puts on near monopolies with limited new production ability if anyone's guess but if you look at these stocks on 2008/2009 estimates they are not exactly cheap. I look at MOS and I see a 11 PE ratio. Should it be 7? Even if growth 'slows' to 30% YoY? If these companies were 40 PE ratios (future) I'd have more of a beef there. But yes, no company can grow like that forever. At $60B market caps if these things doubled and doubled again they would be $240B market caps.

Perception is reality is something I've typed about 100x in the blog :)
It doesnt matter what you think; it matters what the perception is. Bottom line.
Unless your a deep value investor who is willing to wait many years/decade for the market to come around to your point of view ;)

very interesting. my limit order on MOS at 115ish...

2008-05-27T12:23:00.000-04:00

very interesting. my limit order on MOS at 115ish from a while back finally got hit today. scaling in and out as always while maintaining a core position. you know this all to well yourself.

but, i'm beginning to wonder when this sector becomes a true "trade the perception not the reality" trade. (not talking about the minor selloffs we get every few months) because its evident that the prices keep accelerating because there is simply the demand somewhere in the world at all times. then add in the supply shortages on top of that. but, even though we know we might be right on the money with this macro thesis, eventually the street will 'correct' the sector in terms of curtailing future growth.

now, i'm not talking about some of the "oh its the end of the world" selloffs we get every few months. i'm talking the end game trade in this sector where even though long term fertilizer prices will rise and so will demand until further supply hits the market, the street will effectively sell that news rather than buy it. i know i'm not being too clear but hopefully you know what i'm saying? there's obviously no way to know what time this will happen.. i'm thinking early-mid 09? but, i just thought it was worth starting to ponder. i think the next set of earnings reports will really give us a gauge in terms of the street's reaction. now that everyone knows about this story (for the most part), will the companies earning record profits yet again be enough to appease the street?

don't get me wrong i'm with you 100% on this fertilizer play and have been in POT and MOS in one form or another ever since last august. but, i'm starting to think down the line in terms of an exit strategy for this trade/investment. because like all things, eventually this sector will tap out. the fundamentals could still be firing and the macro equation could make perfect sense to us, but to everyone else on the street, they sell the perception not the reality, and then we're essentially swimming upstream against everyone else selling and would be forced to sell.

sorry for the ridiculously long post, i'm mainly just thinking out loud here, but i know you've said you'll be scooping up ferts on all the near term major selloffs, but when do you think it gets to the point where you won't be able to fight the current of "trade the perception" even though reality is telling us another story. i have a feeling this is exactly how it will play out eventually. so, are you saying 1-2 years from now when this starts to occur, you will be buying the ferts in mass? because as more supply finally hits the market down the road, or if government finally changes their ethanol tune, then we've got a clear cut signal. i'm just worried that at some point out of nowhere, one of these mini selloffs will then trigger a more massive selloff in which the entire street changes tune and the unwinding of the trade will occur. and, even if the fundamentals of the trade are still in tact, the street starts to "sell the news" every single time and reality won't matter anymore.

at the very least its interesting to ponder about. i guess all i'm trying to say is that i don't think 3-5 years from now that the fundamentals will be able to hold strong enough to warrant the street buying the reality and instead, they will sell the perception.

if there's one thing i've really learned from some of these types of trades/investments, its that you've got to "trade the perception, not the reality". because even if you're right you could still get swept away because you're just a minnow in a pool full of sharks and your opinion doesn't matter haha. mini selloffs don't concern me right now, just like you. i'll be buying those pullbacks. but, at some point, this will unwind just because the street does what it does. question is, when?

interested to hear your thoughts on all this, and i'm going back to re-read your fert posts because i'm sure you've mentioned some of this stuff before i started reading.

ps- sorry if this posts multiple times, my browser is f'd up.