As we wrote in Tuesday's piece, it is interesting to see the fertilizer stocks "relatively" shake off some quite bad news of late [Mar 4, 2009: Potash, Mosaic, Intrepid Potash Come Under Pressure After Talk of Uralkai 25% Price Cut]. There is a lot of Mergers & Acquisitions activity in the space [Feb 5, 2009: Agrium Launches 3.6 Billion Bid for CF Industries] [Jan 16, 2009: Congratulations Terra Industries Holders], so that might be helping create a floor under the group and quite frankly, even if earnings estimates drop significantly further into 2009, this is not a particularly expensive sector.
That said, we have another cut in production out of Potash (POT), and I continue to smirk a bit as most of the companies I follow closely continue to use the same language regarding "it's a short term issue and the next quarter everything will be fine." It's been about 2 quarters of this so far - we'll see if they change their tune. With that said, agriculture is my favorite "long term" sector and this is the easiest way to play that very long term thesis.
This does highlight another theme: when stocks (or markets) want to go up, there is rather little news flow can do (aside from completely out of left field news events) that will dissuade it. In a move upward,you want to see bad news ignored, as all things being equal, that is bullish.
Via Reuters
Potash Corp of Saskatchewan (POT), the world's largest fertilizer producer, plans to further curtail potash production after recent industry data showed that North American potash inventories have risen. The output cuts reflect a continuing near-term drawdown of inventories as customers work through stockpiles built up before the global economic crisis hit, Potash Corp said in a statement posted to its website on Monday.
The company said it plans to reduce 2009 potash production by an additional 1.5 million tonnes, bringing the total expected curtailments of operational capacity this year to at least 3.5 million tonnes.
Potash Corp said it still expects a strong rebound in potash demand in the second half of 2009 that should continue into 2010. (of course)
The latest data from the Fertilizer Institute indicates that potash inventories at North American producers are 42 percent higher than the previous five-year average. (not good) North American potash shipments in both domestic and export markets were nearly nonexistent in February, down 80 percent from the year-earlier level to another record low of 200,000 tonnes, Bank of America/Merrill Lynch analyst Steve Byrne said in a note to clients. (scary bad)
In a separate research note, BMO Capital Markets analyst Edwin Chee lowered his 2009 and 2010 earnings estimates for Potash Corp and also cut his share-price target for the company.
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