After being an active trader in stocks related to the fertilizer industry for the past three years, I have recognized some interesting factors that have had a huge impact on the price movements of these companies' stock prices.
Since the stock price of listed companies in the fertilizer industry peaked in June, it has slumped by approximately 30%. In the same period, the fertilizer industry has experienced 15% higher prices for the fertilizer UREA (same for CAN, Amonia etc). With the fertilizer price booms, we also are watching the prices of oil and natural gas falling sharply, which means higher margins for the fertilizer producing companies. They are reaching all time high profits for their products. Why is this so? Why does the stock price of fertilizer companies fall when they experience higher prices for their products and better margins?
I believe one answer is the food prices ("of course", you might think, but few people care about it on a daily basis). You'll find a high correlation between the corn price (same for wheat, soybeans) and the stock price of i.e Agrium (AGU), Mosaic (MOS) and Potash (POT). It is important to watch the food prices closely. That is why the global sell-off in commodities has also hit fertilizer stocks hard.
In the long term, I believe that fundamentals will win, and last week's news about China hiking and expanding their export taxes on fertilizer will yet again boost international fertilizer prices and hence give better profit. It's a proof that the demand is still strong and supply is still insufficient
And, while the oil price keeps falling, I will keep on buying. Remember, lower oil and natural gas prices gives lower costs.
The global bull run is not over yet!
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