Monday, October 19, 2009

What is Behind the Fertilizer Rally?

There are a few reasons that drive up fertilizers stocks such ash POT, MOS, IPI, AGU,CF
1. Corn price breaks out
Crop prices dictate whether it is worth it for farmers to apply more fertilizers to get better yield. Corn is one of the crops that are fertilizer intensive and its price is a crucial factor in fertilizer demand.
The most recent quote of December 2009 corn contract at Chicago Merchantile Exchange shows that corn price has just broken out near-term. [Click to enlarge the diagram]





2. China may sign the contract by January
The negotiation over potash prices with China has been dragging on for most part of this year. The last important contract signed by India in July, another major fertilizer buyer, with Russian potash producer had a price tag of $460 per tonne, sharply off the contract price that was over $600 last year.
Another major deal is said to be inked soon. Belarusian Potash Company (BPC) is in the final stages of a Chinese supply deal. The pricing of the 860,000-ton order has not been disclosed, but, in a separate deal, 300,000 tons will be shipped to Vietnam for $500/ton next year.
This deal is expected to set the tone for a major deal between major producers such as POT with China that is expected to close by the end of January.

3. US Dollar weakness
US Dollar has been going down, breaking new lows every couple of weeks. Weak dollar means high prices of hard assets such as agricultural products, basic materials, precious materials, etc.

4. Take-over target
With resuming liquidity, merger and acquisitions are back to business. The,Australian giant miner, BHP with $18 billion cash has been rumored to eyeing POT to add to its potash portfolio as its Brazilian competitor, VALE is doing the same.


You may also be interested in articles in the same category:

http://cocacolabuffet.blogspot.com/search/label/Agriculture

5 comments:

Rambleon said...

Good article. Looks like the grain market (corn, wheat, soybean) has reached a significant bottom, and will likely to put on a big rally in the coming months, which will be good for fertilizers. POT is likely to go to 140.

coke said...

I am with you

Rambleon said...

That being said, I still prefer ag commodities themselves than ag stocks. So I own JJG

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