Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21
Scan Computers - How to Test New Systems CPU, GPU and Hard Drive Stability With Free Software - 4th Jun 21
Hedge Funds Getting Bullish on Gold - 4th Jun 21
THERE ARE NO SOLUTIONS When the Media is the VIRUS - 4th Jun 21
Investors Who Blindly Trust the ‘Experts’ Will Get Left Behind - 4th Jun 21
US Stock Market Indexes Consolidate Into Flagging Pattern – Watch For Aggressive Trending Soon - 4th Jun 21
Microsoft (MSFT) Stock Trend Analysis - 3rd Jun 21
No More Market Bloodbath – Beyond Cryptos - 3rd Jun 21
Bank run, or run from the banks? - 3rd Jun 21
This Chart Shows When Gold Stocks Will Explode - 3rd Jun 21
The Meaning Behind Gold’s Triple Top - 2nd Jun 21
Stock Market Breakout Or Breakdown – What Does The Next Big Trend Look Like? - 2nd Jun 21
Biden’s Alternate Inflation Universe - 2nd Jun 21
What You Should Know Before Buying Car Insurance - 2nd Jun 21
Amazon (AMZN) Stock Summer Prime Day Discount Sale - 1st Jun 21
Gold Investor's Survival Guide - 1st Jun 21
Silver and Copper to Benefit from Global Electrification Push - 1st Jun 21
Will Gold Shine Under Bidenomics? - 1st Jun 21
Stock Market Buy the Dip, Again?! - 1st Jun 21
Stock Market Consolidation Ahead - 1st Jun 21
Stock Market Summer Correction Review, Crypto CRASH, Bitcoin Bear Market Initial Targets - 31st May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Invest in Agriculture After the Potash Price Crash

Commodities / Agricultural Commodities Aug 01, 2013 - 05:03 PM GMT

By: Money_Morning

Commodities

Garrett Baldwin writes: Global commodity woes increased again on Tuesday after Russia's Uralkali broke up one of the world's largest potash partnerships and ended a marketing venture agreement with producers in Belarus.

This development changes how to invest in agriculture- as it has already sent investors fleeing from nutrient and fertilizer stocks this week.


In addition, the impact will likely crash global potash prices by 25% to 30%, as the collapse of an international duopoly will end a price-fixing agreement that benefited other producers of the key commodity by artificially inflating prices and keeping supply off the market.

Producer shares plummeted Tuesday -- some by nearly 30% -- with the breakup of the Belarus Potash Company, pushing many fertilizer companies back near their 52-week lows.

Following the news, BMO Capital Markets analyst Joel Jackson called this deal the "the end of the potash world as we know it."

But as potash costs likely drop toward $300 a ton, a consensus target among analysts, it's not all bad news for companies in need of this key ingredient in fertilizer. The breakup of the pricing cartel favors key agricultural producers, in addition to a reconfiguration of this key commodity market toward the end of the summer.

And as investors are trying to determine a bottom for these shares, the real opportunity may be elsewhere. Here's how to play this sudden correction in fertilizer stocks and the agricultural market right now.

This Cartel Breakup is Good For Consumers

Prior to this announcement, the Belarus Potash Company and North America's Cantopex (a joint venture of three U.S. producers) accounted for 70% of the global potash trade.

This duopoly effectively kept potash prices artificially high, a boon to producers of the nutrients. With the break-up of the cartel, more potash supply will likely hit the market and prices could slide significantly.

However, with more supply on the market and falling prices, that doesn't suggest that demand won't pick up. In fact, Uralkali is effectively counting on this demand given their unique power over competitors. The company maintains lower production costs of $62 per ton, according to company reports.

The announcement favors certain companies...

Companies like Uralkali will have the lower production costs, providing them a strong opportunity to gain market share and ramp up production. Uralkali announced that it will produce 13 million tons in 2014, a steep increase from the 10.5 million planned for this year. Others will likely follow suit.

A reconfiguration of the marketplace will likely see some potential consolidation in the potash market as the impact of falling prices forces companies to reexamine their production costs.

Merger activity could pick up toward the end of the year, though the dust will need to settle as producers attempt to get their costs in line in an effort to buoy their margins.

How to Invest in Agriculture Post-Potash Collapse

Fertilizer and nutrient stocks fell by 21% in pre-trading sessions and continued their slide as retail investors awoke to the news.

Mosaic Co. (NYSE: MOS) fell by 18%, Potash Corp./Saskatchewan (USA) (NYSE: POT) by 18%, and Intrepid Potash, Inc. (NYSE: IPI) fell by 29%. All three producers are back near 52-week lows, with greater threats of hemorrhaging prices in the near-term.

Though the metrics and fundamentals appear to favor these companies over the long-term (P/E levels are back to single digits in some), a wave of downgrades may follow from many desks in New York and London.

Bank of America analyst Fernando Ferreira downgraded Sociedad Quimica y Minera (NYSE: SQM) to Underperform. The stock fell by 18% as well, and Ferreria slashed his price target to $29 from $57.

Fertilizer stocks had been one of the hottest sectors for the better part of three years as the commodity boom took off. But concerns about China have increased and the realization that its demand levels haven't remained constant has set in for now.

Wall Street appears tepid on agriculture, the primary consumer of potash ingredients, and it's fast becoming a downturn for investors in the sector. In fact, some investment banks have pulled out of soft commodities altogether.

Despite the current downturn for agricultural investors, the world is on pace to feed 9 billion mouths by 2050, placing a significant strain on food, water, and energy resources.

But technological innovation is a key driver in the one major agricultural sector -- one that is primed for significant profits.

That sector is animal technology, a $22 billion market with a lot of upside as dietary transitions take place around the world and an emphasis on quality overtakes the focus on quantity.

Primary drug companies like Pfizer (NYSE: PFE), Sanofi-Aventis, and Merck (NYSE: MRK) maintain animal health units, and at some point the sector will experience an increase in standalone companies.

Pfizer most recently spun off its animal health unit in a $4.2 billion IPO of Zoetis (NYSE: ZTS). In addition, traditional agribusiness firms like Archer Daniels Midland (NYSE: ADM) and DuPont (NYSE: DD) are looking to their animal health units as new sources of revenue as Asian markets continue to transition to a more meat-based diet.

The potash market will continue to experience increased demand, though predicting long-term prices will be a significant challenge until we see what the post-duopoly world looks like in the coming months.

For now, investors pondering how to invest in agriculture would do better to focus more on new forms of innovation in the plant and animal science markets that place an emphasis on quality in growing markets around the globe.

Source :http://moneymorning.com/2013/07/31/how-to-invest-in-agriculture-after-the-potash-price-crash/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in