Companies fight to lure bargain-hunters with the best deals, but the strategy doesn't always do the trick.
ConAgra Foods is preparing to report fourth-quarter earnings on Thursday morning, but analysts warn the popularity of grocery stores' private-label brands could chew into profits. According to one stockpicker, however, the company's lower input costs are helping it close the pricing gap.
After grocery store operator Kroger announced a meaty 12.7% boost to first-quarter profits aided by its strong private-label business, which contributed 35% of the quarter's sales, investors questioned whether popular food lines are getting squeezed by bargain-hunting shoppers. UBS analyst David Palmer doesn't think this will be a problem for Omaha, Neb.-based ConAgra Foods ( CAG - news - people ), which does some private-label business but is largely driven by its popular brand portfolio that includes Chef Boyardee, Swiss Miss and Hunt's
According to Palmer, moderating input costs have resulted in narrowing price gaps between private-label and ConAgra products. On Tuesday, he upgraded the company to "buy" from "neutral" based on his belief that the company's improved execution has been undervalued by the market.
"We believe ConAgra should benefit from moderating inflation, improved innovation and pricing, a value-oriented portfolio and macro trends benefiting eating at home," Palmer said. "While we continue to think that additional investments need to be made in ConAgra's brands, we are encouraged by recent initiatives to do so, and do not believe our call depends on the company immediately becoming 'best in breed.' "
ConAgra shares closed Wednesday's trading session up by 25 cents, or 1.3%, at $20.03. Analysts polled by Thomson Reuters have been expecting fourth-quarter earnings of 41 cents a share and sales of $3.3 billion.
The food business has become increasingly competitive as companies fight to convince consumers that they provide the best values on everything from edibles to household basics
Wednesday, June 24, 2009
Tuesday, June 23, 2009
Watch Potash Grow
The steep selloff in the fertilizer maker's stock has been wildly overdone.
SHARES OF Potash Corp. of Saskatchewan (ticker: POT) have plunged by about 25% in just the past week and a half. The world's largest maker of potassium-based fertilizer has cut production and capacity drastically in the face of a global recession and has suffered as traders book profits on recent gains made in the commodity complex.
Moreover, commodity prices fell sharply Monday after the World Bank cut its 2009 projection for world growth to a decline of 2.9% from a decline of 1.7%. And on Sunday, the International Monetary Fund's director said the IMF expects to cut its world growth outlook.
But make no mistake. The tiniest of green shoots might nourish the fertilizer maker's outlook. After gaining $2.76, or 3%, this morning, to $90.03, the stock fetches 14 times this year's expected $6.44 per share, and nine times 2010's $10 estimate.
The industry, including Potash, built up capacity enormously last year after several years of tight supply. That, along with rising fuel prices (natural gas is the biggest cost of production for Potash), was passed along to farmers in the form of a doubling of potash prices.
When the crisis hit, farmers, unable to get credit, held off on fertilizer use, idling capacity for Potash and everyone else.
Barrons.com writer Naureen Malik deftly anticipated Potash's fall, going negative on the stock in April of 2008, and then suggested picking up the shares around $69 last October, which turns out to have been a very good call.
There's room for more upside from here.
But Potash and the industry have been cutting production dramatically, and when an eventual upturn comes, economics can work in Potash's favor.
Just look at the first-quarter income statement for the three months ended in March: Sales fell 51%, while natural gas and transportation and freight costs all fell less sharply, resulting in a 73% year-over-year drop in gross profit. That implies profit can surge when farmers buy again, and buy they will.
Fertilizer is a global business, and food production can be expected to rise with global population growth and with economic development. Agriculture is expected to remain fairly robust in the coming decade according to the U.N.'s Organization for Economic Cooperation and Development, which put out a tome on the matter last week.
This is why it's important that Potash has investments in businesses in China, Chile, and other parts of the developing world, where fertilizer can help yield more from crops, from which everyone, producers and consumers alike, should benefit.
While the company expects fertilizer use to drop by 20% in the U.S. market, China, for example, is expected to increase fertilizer use this year.
After cutting 5.5 million tons of annual production since August, Potash's capacity is just one-fifth of the 47 million tons the entire fertilizer industry is expected to ship worldwide this year. That means tight supplies could cause prices to surge again when fertilizer use picks up, feeding Potash's cash flow.
With $2.8 billion in debt and $255 million in cash, Potash not only has the balance sheet to hold out till the market rebounds, it should be able to support its modest 10-cent-per-share dividend, which has steadily risen over the last two decades.
SHARES OF Potash Corp. of Saskatchewan (ticker: POT) have plunged by about 25% in just the past week and a half. The world's largest maker of potassium-based fertilizer has cut production and capacity drastically in the face of a global recession and has suffered as traders book profits on recent gains made in the commodity complex.
Moreover, commodity prices fell sharply Monday after the World Bank cut its 2009 projection for world growth to a decline of 2.9% from a decline of 1.7%. And on Sunday, the International Monetary Fund's director said the IMF expects to cut its world growth outlook.
But make no mistake. The tiniest of green shoots might nourish the fertilizer maker's outlook. After gaining $2.76, or 3%, this morning, to $90.03, the stock fetches 14 times this year's expected $6.44 per share, and nine times 2010's $10 estimate.
The industry, including Potash, built up capacity enormously last year after several years of tight supply. That, along with rising fuel prices (natural gas is the biggest cost of production for Potash), was passed along to farmers in the form of a doubling of potash prices.
When the crisis hit, farmers, unable to get credit, held off on fertilizer use, idling capacity for Potash and everyone else.
Barrons.com writer Naureen Malik deftly anticipated Potash's fall, going negative on the stock in April of 2008, and then suggested picking up the shares around $69 last October, which turns out to have been a very good call.
There's room for more upside from here.
But Potash and the industry have been cutting production dramatically, and when an eventual upturn comes, economics can work in Potash's favor.
Just look at the first-quarter income statement for the three months ended in March: Sales fell 51%, while natural gas and transportation and freight costs all fell less sharply, resulting in a 73% year-over-year drop in gross profit. That implies profit can surge when farmers buy again, and buy they will.
Fertilizer is a global business, and food production can be expected to rise with global population growth and with economic development. Agriculture is expected to remain fairly robust in the coming decade according to the U.N.'s Organization for Economic Cooperation and Development, which put out a tome on the matter last week.
This is why it's important that Potash has investments in businesses in China, Chile, and other parts of the developing world, where fertilizer can help yield more from crops, from which everyone, producers and consumers alike, should benefit.
While the company expects fertilizer use to drop by 20% in the U.S. market, China, for example, is expected to increase fertilizer use this year.
After cutting 5.5 million tons of annual production since August, Potash's capacity is just one-fifth of the 47 million tons the entire fertilizer industry is expected to ship worldwide this year. That means tight supplies could cause prices to surge again when fertilizer use picks up, feeding Potash's cash flow.
With $2.8 billion in debt and $255 million in cash, Potash not only has the balance sheet to hold out till the market rebounds, it should be able to support its modest 10-cent-per-share dividend, which has steadily risen over the last two decades.
Monsanto Is A Screaming ‘Buy’, Says Analyst
Investors will be closely watching results from Monsanto [MON 79.30 1.18 (+1.51%) ] Wednesday before the bell. What will they reveal about the ag trade?
It seems investors will be keen to see if Monsanto, the world's biggest seed maker, can show a clear path to greater profitability.
“I expect to hear their margins are doing better and better,” says BB&T analyst Frank Mitsch on Fast Money.
And Laurence Alexander of Jefferies is looking for profits of $1.20 per share slightly higher than the $1.18 per share average.
What’s the trade?
Alexander has a 'buy' on the stock but also says uncertainty will likely make the stock somewhat volatile and keep it fairly range bound.
That's practically bearish when compared to what Frank Mitsch tells the Fast Money desk. "Monsanto is a screaming buy at current levels," Mitsch exclaims.
I also love the name but I find it hard to determine a fair valuation, says Pete Najarian. However I’d say there’s much more upside to the stock than downside.
It seems investors will be keen to see if Monsanto, the world's biggest seed maker, can show a clear path to greater profitability.
“I expect to hear their margins are doing better and better,” says BB&T analyst Frank Mitsch on Fast Money.
And Laurence Alexander of Jefferies is looking for profits of $1.20 per share slightly higher than the $1.18 per share average.
What’s the trade?
Alexander has a 'buy' on the stock but also says uncertainty will likely make the stock somewhat volatile and keep it fairly range bound.
That's practically bearish when compared to what Frank Mitsch tells the Fast Money desk. "Monsanto is a screaming buy at current levels," Mitsch exclaims.
I also love the name but I find it hard to determine a fair valuation, says Pete Najarian. However I’d say there’s much more upside to the stock than downside.
Agrium extends deadline for CF Industries offer
CALGARY, Alberta (AP) -- Agrium Inc. said Tuesday it extended the deadline to acquire rival fertilizer company CF Industries Holdings Inc. after 62 percent of CF shareholders tendered their shares to the deal valued at more than US$4 billion.
The offer, which expired at midnight Monday, has been extended to July 22.
"CF stockholders have sent a resounding message to CF's Board that they support Agrium's offer," Agrium President and CEO Mike Wilson said in a statement."These are extraordinarily strong results, particularly given that CF's poison pill and other defense mechanisms are still in place and we urge CF's Board to respect this clear message from its stockholders."
Deerfield, Ill.-based CF Industries reiterated Tuesday that it thinks Agrium is undervaluing the company.
"Contrary to Agrium's assertions, the tender offer results do not change the facts that Agrium's offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues," said Stephen R. Wilson, chairman, president and CEO of CF Industries.
The company's board and management have consistently rebuffed Agrium's takeover attempt, despite two increases to its original bid. Last week, Agrium threatened to walk away if a "compelling majority" of CF Industries shareholders didn't show their support for a deal.
Canada-based Agrium is offering $40 per share, as well as a one-for-one share swap, an offer that it says represents a 59 percent premium to CF's closing price before the offer was first made public on Feb. 24.
RiskMetrics Group, an advisory firm, has recommended CF Industries' shareholders approve a deal with Agrium.
Meanwhile, CF Industries is trying to buy another fertilizer company, Terra Industries Inc., and has launched a fight to unseat that company's board. The Sioux City, Iowa, company has repeatedly rejected CF Industries' advances.
Shares of Agrium gained $1.85, or 4.8 percent, to close at $40.74, while CF Industries shares jumped $3.56, or 5.1 percent, to $72.88.
The offer, which expired at midnight Monday, has been extended to July 22.
"CF stockholders have sent a resounding message to CF's Board that they support Agrium's offer," Agrium President and CEO Mike Wilson said in a statement."These are extraordinarily strong results, particularly given that CF's poison pill and other defense mechanisms are still in place and we urge CF's Board to respect this clear message from its stockholders."
Deerfield, Ill.-based CF Industries reiterated Tuesday that it thinks Agrium is undervaluing the company.
"Contrary to Agrium's assertions, the tender offer results do not change the facts that Agrium's offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues," said Stephen R. Wilson, chairman, president and CEO of CF Industries.
The company's board and management have consistently rebuffed Agrium's takeover attempt, despite two increases to its original bid. Last week, Agrium threatened to walk away if a "compelling majority" of CF Industries shareholders didn't show their support for a deal.
Canada-based Agrium is offering $40 per share, as well as a one-for-one share swap, an offer that it says represents a 59 percent premium to CF's closing price before the offer was first made public on Feb. 24.
RiskMetrics Group, an advisory firm, has recommended CF Industries' shareholders approve a deal with Agrium.
Meanwhile, CF Industries is trying to buy another fertilizer company, Terra Industries Inc., and has launched a fight to unseat that company's board. The Sioux City, Iowa, company has repeatedly rejected CF Industries' advances.
Shares of Agrium gained $1.85, or 4.8 percent, to close at $40.74, while CF Industries shares jumped $3.56, or 5.1 percent, to $72.88.
Agrium extends deadline for CF Industries offer
CALGARY, Alberta (AP) -- Agrium Inc. said Tuesday it extended the deadline to acquire rival fertilizer company CF Industries Holdings Inc. after 62 percent of CF shareholders tendered their shares to the deal valued at more than US$4 billion.
The offer, which expired at midnight Monday, has been extended to July 22.
"CF stockholders have sent a resounding message to CF's Board that they support Agrium's offer," Agrium President and CEO Mike Wilson said in a statement."These are extraordinarily strong results, particularly given that CF's poison pill and other defense mechanisms are still in place and we urge CF's Board to respect this clear message from its stockholders."
Deerfield, Ill.-based CF Industries reiterated Tuesday that it thinks Agrium is undervaluing the company.
"Contrary to Agrium's assertions, the tender offer results do not change the facts that Agrium's offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues," said Stephen R. Wilson, chairman, president and CEO of CF Industries.
The company's board and management have consistently rebuffed Agrium's takeover attempt, despite two increases to its original bid. Last week, Agrium threatened to walk away if a "compelling majority" of CF Industries shareholders didn't show their support for a deal.
Canada-based Agrium is offering $40 per share, as well as a one-for-one share swap, an offer that it says represents a 59 percent premium to CF's closing price before the offer was first made public on Feb. 24.
RiskMetrics Group, an advisory firm, has recommended CF Industries' shareholders approve a deal with Agrium.
Meanwhile, CF Industries is trying to buy another fertilizer company, Terra Industries Inc., and has launched a fight to unseat that company's board. The Sioux City, Iowa, company has repeatedly rejected CF Industries' advances.
Shares of Agrium gained $1.85, or 4.8 percent, to close at $40.74, while CF Industries shares jumped $3.56, or 5.1 percent, to $72.88.
The offer, which expired at midnight Monday, has been extended to July 22.
"CF stockholders have sent a resounding message to CF's Board that they support Agrium's offer," Agrium President and CEO Mike Wilson said in a statement."These are extraordinarily strong results, particularly given that CF's poison pill and other defense mechanisms are still in place and we urge CF's Board to respect this clear message from its stockholders."
Deerfield, Ill.-based CF Industries reiterated Tuesday that it thinks Agrium is undervaluing the company.
"Contrary to Agrium's assertions, the tender offer results do not change the facts that Agrium's offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues," said Stephen R. Wilson, chairman, president and CEO of CF Industries.
The company's board and management have consistently rebuffed Agrium's takeover attempt, despite two increases to its original bid. Last week, Agrium threatened to walk away if a "compelling majority" of CF Industries shareholders didn't show their support for a deal.
Canada-based Agrium is offering $40 per share, as well as a one-for-one share swap, an offer that it says represents a 59 percent premium to CF's closing price before the offer was first made public on Feb. 24.
RiskMetrics Group, an advisory firm, has recommended CF Industries' shareholders approve a deal with Agrium.
Meanwhile, CF Industries is trying to buy another fertilizer company, Terra Industries Inc., and has launched a fight to unseat that company's board. The Sioux City, Iowa, company has repeatedly rejected CF Industries' advances.
Shares of Agrium gained $1.85, or 4.8 percent, to close at $40.74, while CF Industries shares jumped $3.56, or 5.1 percent, to $72.88.
Agrium to press forward with hostile CF bid
Agrium, a Canadian fertiliser maker, said on Tuesday that 62 per cent of the stock of US rival CF Industries had been tendered in support of its $3.85bn hostile takeover bid for the company.
Based on its ability to win support over a majority of CF’s shares through the tender offer, which had been set to expire on Monday night, Agrium said it would extend its deadline by another month in an effort to generate further backing.
But while Agrium said it was ready to meet immediately with CF to execute a binding merger agreement, it was not clear the results of the tender offer would compel such talks.
CF has consistently refused Agrium’s entreaties and opted to focus instead on its own hostile takeover bid for Terra Industries, a smaller US fertiliser supplier. It claims Agrium’s offer is an effort to distract its shareholders and scuttle the attempted transaction with Terra.
“Contrary to Agrium’s assertions, the tender offer results do not change the facts that Agrium’s offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues,” said Stephen Wilson, CF’s chief executive.
Agrium has little leverage to force a deal because CF has installed a “poison pill” anti-takeover provision that could make a hostile bid all but impossible to execute through a tender offer. Agrium also missed a deadline earlier this year to nominate directors to CF’s board, so it would have to wait until the company’s next annual meeting to launch a proxy context.
CF, furthermore, restructured its initial offer for Terra to eliminate a vote by its shareholders on that deal, making it more difficult for CF shareholders to voice their opinions on which deal the company should pursue.
Agrium had said it would continue to pressure CF into talks over a deal if a “compelling majority” of CF’s shares were tendered.
The offer currently consists of $40 in cash and one common share of Agrium for each share of CF, valuing CF shares at $79.58 as of midday on Tuesday. The shares were trading below that level at $71.58.
Based on its ability to win support over a majority of CF’s shares through the tender offer, which had been set to expire on Monday night, Agrium said it would extend its deadline by another month in an effort to generate further backing.
But while Agrium said it was ready to meet immediately with CF to execute a binding merger agreement, it was not clear the results of the tender offer would compel such talks.
CF has consistently refused Agrium’s entreaties and opted to focus instead on its own hostile takeover bid for Terra Industries, a smaller US fertiliser supplier. It claims Agrium’s offer is an effort to distract its shareholders and scuttle the attempted transaction with Terra.
“Contrary to Agrium’s assertions, the tender offer results do not change the facts that Agrium’s offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues,” said Stephen Wilson, CF’s chief executive.
Agrium has little leverage to force a deal because CF has installed a “poison pill” anti-takeover provision that could make a hostile bid all but impossible to execute through a tender offer. Agrium also missed a deadline earlier this year to nominate directors to CF’s board, so it would have to wait until the company’s next annual meeting to launch a proxy context.
CF, furthermore, restructured its initial offer for Terra to eliminate a vote by its shareholders on that deal, making it more difficult for CF shareholders to voice their opinions on which deal the company should pursue.
Agrium had said it would continue to pressure CF into talks over a deal if a “compelling majority” of CF’s shares were tendered.
The offer currently consists of $40 in cash and one common share of Agrium for each share of CF, valuing CF shares at $79.58 as of midday on Tuesday. The shares were trading below that level at $71.58.
6 Stock Picks Ahead Of The Correction
Investors are struggling to determine if stocks are heading for a big correction and the bearish case certainly got a boost on Monday from comments made by a widely followed economist on CNBC.
During an interview on Squawk Box Europe Nouriel Roubini, also dubbed "Dr. Doom, said "I see the risk of a double-dip, W-shaped recession… towards the end of next year."
Rubini singles out high prices at the pump and inflation as having the potential to be very serious drags on the economy. In addition, Rubini also feels that the next earnings season could be very, very disappointing with companies unable to support their current valuations.
As a result he says, “I believe there's going to be a significant market correction for equities."
Of course Roubini’s forecasts can be a little gloomy but he’s not alone in his call for a correction.
If you watch the show regularly you know that Fast Money trader Guy Adami has been pounding the desk for days about signals he considers bearish. "The path of least resistance appears to be lower," he says over and over.
And even OptionMonster Jon Najarian – who tends to be something of an optimist – suggests preparing for a correction, though Najarian expects the slide to be mild.
If stocks are heading for a correction, which names should you get on your radar right now?
Tim Seymour: I think Potash [POT 92.08 4.81 (+5.51%) ] and Intrepid Potash [IPI 26.29 1.65 (+6.7%) ] are both within 5% of being terribly attractive.
Guy Adami: If JPMorgan [JPM 33.57 0.70 (+2.13%) ] gets down to $28 I think it’s interesting.
Karen Finerman: I’m a buyer of Transocean [RIG 72.98 0.62 (+0.86%) ] down 5%.
Joe Terranova: I like Goldman [GS 141.19 4.18 (+3.05%) ] and Freeport McMoRan [FCX 47.18 2.00 (+4.43%) ] .
During an interview on Squawk Box Europe Nouriel Roubini, also dubbed "Dr. Doom, said "I see the risk of a double-dip, W-shaped recession… towards the end of next year."
Rubini singles out high prices at the pump and inflation as having the potential to be very serious drags on the economy. In addition, Rubini also feels that the next earnings season could be very, very disappointing with companies unable to support their current valuations.
As a result he says, “I believe there's going to be a significant market correction for equities."
Of course Roubini’s forecasts can be a little gloomy but he’s not alone in his call for a correction.
If you watch the show regularly you know that Fast Money trader Guy Adami has been pounding the desk for days about signals he considers bearish. "The path of least resistance appears to be lower," he says over and over.
And even OptionMonster Jon Najarian – who tends to be something of an optimist – suggests preparing for a correction, though Najarian expects the slide to be mild.
If stocks are heading for a correction, which names should you get on your radar right now?
Tim Seymour: I think Potash [POT 92.08 4.81 (+5.51%) ] and Intrepid Potash [IPI 26.29 1.65 (+6.7%) ] are both within 5% of being terribly attractive.
Guy Adami: If JPMorgan [JPM 33.57 0.70 (+2.13%) ] gets down to $28 I think it’s interesting.
Karen Finerman: I’m a buyer of Transocean [RIG 72.98 0.62 (+0.86%) ] down 5%.
Joe Terranova: I like Goldman [GS 141.19 4.18 (+3.05%) ] and Freeport McMoRan [FCX 47.18 2.00 (+4.43%) ] .
Another Potash Production Cut - Fertilizer Names Get Composted
We are back to the world of thesis versus reality. It's a world we've been living in since I started this blog - people front running a recovery that constantly is out of reach; it's been Groundhog Day (the movie) repeatedly. In the thesis world speculators drive stocks up on the basis of what they believe will happen in the future, while ignoring the facts on the ground - even things the CEOs themselves say. Because they know better as forecasters of the future. In the reality world, companies report... well, reality. I won't bother you with the FedEx (FDX) report this morning which is a lot better proxy on the economy than 99.9% of government reports because it's an actual company that has to deal with the real world, unlike the fantasy of government numbers. For about the 4th? time in the past 18 months, they are pushing guidance down...
As you know the commodity trade has been the big winner... very crowded; it's 2007 all over again. If only these companies would not open their mouths and report on reality we could keep bidding up stocks in this group for no reason other than "everyone else is buying so I must too". Mosaic (MOS) and Potash (POT) have been reporting poor numbers for about 3 quarters now, while constantly saying the turn is "just around the bend". Then the next quarter the turn has not come. I have now come the point I doubt their words because they keep saying one thing, and another happens. Today, the fertilizer names are taking a hit because Potash (POT) says they are cutting back production yet again.... but not to worry, this will just lead to even larger demand "soon" (Groundhog Day?) Emphasis mine:
PotashCorp today indicated a further reduction in 2009 potash production of 0.8 million tonnes, bringing curtailments this calendar year to 4.7 million tonnes and total curtailments to 5.5 million tonnes since August 2008.
Lagging demand due to an extremely slow US spring season and extended negotiations with offshore buyers are the reasons behind the shutdowns. However, with the world's soils and supply chain nearing depletion after almost a year of deferral, we expect demand to return in second-half 2009 as Brazil approaches its major application season and India and China inevitably return to the market.
This unprecedented period of draw-down throughout the supply chain, coupled with the expectation of lower global crop production and higher crop prices, is expected to lead to an even stronger rebound in 2010.
It's a darn shame these companies have to report actual business metrics because if they did not, speculators could run these stocks up another 50-100% based on thesis. Because when you create reasons for stocks to go up based on opinion, rather than fact... no price is too high.
I say all this with the background of potash being my favorite long term commodity - and I own these names...
As you know the commodity trade has been the big winner... very crowded; it's 2007 all over again. If only these companies would not open their mouths and report on reality we could keep bidding up stocks in this group for no reason other than "everyone else is buying so I must too". Mosaic (MOS) and Potash (POT) have been reporting poor numbers for about 3 quarters now, while constantly saying the turn is "just around the bend". Then the next quarter the turn has not come. I have now come the point I doubt their words because they keep saying one thing, and another happens. Today, the fertilizer names are taking a hit because Potash (POT) says they are cutting back production yet again.... but not to worry, this will just lead to even larger demand "soon" (Groundhog Day?) Emphasis mine:
PotashCorp today indicated a further reduction in 2009 potash production of 0.8 million tonnes, bringing curtailments this calendar year to 4.7 million tonnes and total curtailments to 5.5 million tonnes since August 2008.
Lagging demand due to an extremely slow US spring season and extended negotiations with offshore buyers are the reasons behind the shutdowns. However, with the world's soils and supply chain nearing depletion after almost a year of deferral, we expect demand to return in second-half 2009 as Brazil approaches its major application season and India and China inevitably return to the market.
This unprecedented period of draw-down throughout the supply chain, coupled with the expectation of lower global crop production and higher crop prices, is expected to lead to an even stronger rebound in 2010.
It's a darn shame these companies have to report actual business metrics because if they did not, speculators could run these stocks up another 50-100% based on thesis. Because when you create reasons for stocks to go up based on opinion, rather than fact... no price is too high.
I say all this with the background of potash being my favorite long term commodity - and I own these names...
Commodity Analyst Jurgens Bauer on Coffee. Cocoa and Orange Juice
Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. Well, today we have a floor trader – yes, you don’t find them too often – Jurgens Bauer of PitGuru.com and soft commodity analyst from the Intercontinental Exchange.
Jurgens, thanks very much for coming by; really, it’s great. Like I said, you’re sort of an anachronism, and you and I go back. We know each other from the days of the COMEX and the NYMEX back in the ’80s, so it’s great to see you again; I haven’t seen you in a long time.
It’s great to have you here because you cover an area … the soft commodity area – we’re talking about coffee, sugar, cocoa, orange juice, cotton … really a specialized focus there. First, I’m very curious to find out: What’s it like down on the floor? Everything is electronic nowadays.
Jurgens Bauer, PitGuru.com/soft commodity analyst, Intercontinental Exchange (Bauer): Well, it’s a lot different from the old days; the futures pits are electronic. I’ve always been an options guy, and one of the things that’s still available for floor traders is the option markets, so we still have pits.
Norman: Why is that? Is that because the options are just such a specialized thing that you really need to have a human, somebody in there to work with?
Bauer: Don’t I wish. I think probably a better answer to is that the information flow that has to go back and forth every time there’s a minute change in the price … when you’re talking about not just hundreds of options … then you’ve got the multiple combinations of this option against that option, this spread against this spread, you’ve got fences and straddles and strangles and all this stuff, and there’s too much information.
Norman: It’s not a plain-vanilla type of purchase … a futures contract, short a futures contract.
Bauer: If one of the exchanges has come up with a successful option platform which could be then utilized to transact business, I wouldn’t be doing what I’m doing on the trading floor. Currently that doesn’t exist. That’s not to say that it won’t happen at some point, but it just doesn’t exist. And for now I think the window of opportunity, shall we say, is going to continue for at least another three, maybe seven more years.
Norman: All right. Let’s talk about your markets. You are the soft analyst for Pit Guru, and we’ve seen recently again some of these markets really start to perk up. What is behind this? It’s sort of a curious thing to watch, because you look at economic activity here in the United States, around the world – still very tepid, very weak. Why are these commodity prices rising? Is there a fundamental reason behind this, or is it again fund speculation?
Bauer: It’s a good question. I would have to answer that by looking at each individual market, and I can provide you with fundamental reasons, for instance, for sugar.
Norman: Let’s go; let’s run them down.
Bauer: Sugar price has gone up because the production on a world scale is lower, and consumption is certainly going to remain the same if not go up – increase as populations increase, and diets go up, diets improve. So I would have to say there’s a powerful fundamental force at work.
Norman: Is sugar also involved in this alternative energy theme, because don’t they use sugar in Brazil for the making of ethanol?
Bauer: Yes; in Brazil they do. In this country, we’ve been … how do I say this politically correct now … we use corn, OK? My understanding is it’s less efficient and more costly than it would be from sugar. Yes; so that force is at work as well.
In cotton, we had pretty good exports going, we had much-reduced crop size, not only in this country but tapered off around the world.
Norman: Is that because when we had the boom in the commodities like corn and wheat and soybeans two years ago, cotton acreage was reduced so that farmers used it to plant the more-lucrative crops?
Bauer: Sure, right. Not only that, you had … so those are markets … in coffee – right now my personal favorite market.
orman: Now coffee is at, what, like a four-month high right now?
Bauer: Yeah, coffee, made a high just shy of 140 last week; pretty much up every day last week until Friday, and then we saw some profit-taking. You remember those days when you get a little profit-taking after an up week all week? Today it was down, but you can’t keep it down.
Norman: Well, I certainly drink a lot of it, not that it’s so much of a contributory factor.
Bauer: And that’s why it’s bullish: because Mike drinks a lot. No. But in addition to all this, you also have a weaker dollar, and that’s been a major factor in the soft markets. We’ve also seen a lot of commodity fund investment.
Norman: Yeah; that’s what I want to talk about, because you deal a lot as a floor broker, you deal with people in the trade, people in the physical business of either producing or merchandising these commodities that you’re talking about. What do they say about the speculative element in the markets? Are they concerned about it, do they think it’s a good thing; what’s their view?
Bauer: I would have to say the overwhelming majority, especially in cotton, were very much opposed to the enhanced speculation.
Norman: What’s happening? Is it creating a distortion, is it making it harder for them to run their own business in terms of hedging and planning?
Bauer: Well, I don’t want to say that the traders used to use the market as an ATM machine, but I will tell you that they had a distinct advantage because they knew what was going on and they could use that to their advantage. You don’t want to say it’s insider trading or anything, it’s their business, and these markets were created for them to offset their price risk.
Norman: Nobody could know the market better than someone who’s physically involved in either producing or merchandising it, that’s clear.
Bauer: When you had this big influx of all this fund money, it became overwhelming to some of the boutique markets that we really have in the softs; they’re not the huge big-volume markets that you have. Sugar might be an exception when you compare it to some of the average daily volumes in cotton, coffee, cocoa and orange juice, but they’re certainly not as large or as deep of a market as oil or gold – what you used to trade.
Norman: It’s much easier to manipulate, in other words, to push around, absolutely, and the amount of money flowing into these funds and also these new instruments – ETFs that allow investors to buy into it like a stock. These are these passive long-only commodity investments that tremendous amounts of money are flowing into. So how does the outlook now … let’s give a little bit of an outlook now, let’s say, for the next six months or the remainder of this year … is this rally going to last, is it going to extend or are we going to plateau out?
Bauer: Well, I really wish I knew the answer to that, but I would have to say - from my own perspective right now - I believe coffee has got 1.50, 1.70 in it before the year is over, in all likelihood, because we do have a legitimate supply problem there. We’re approaching the season where you’re going to have the potential for frost in the Southern Hemisphere, which is where Brazil and etc. … and again you’re seeing the added component of the weaker dollar. In the case of cotton.
Norman: What about orange juice and cocoa?
Bauer: All right. First let me tell you that OJ had been undervalued last year; it’s a smaller market. I think that there’s concerns this year; we had a lot of concerns about drought conditions, although there had been rains this past week pretty much every day in Florida in the growing areas, which ought to take care of a lot that moisture concern. Demand had also fallen off, but I think demand is returning to its historical levels. I tend to believe that, again, we’re going to see prices kind of return to a normal level; in other words, head north of a dollar, head towards $1.15, currently trading in the low 90s.
Norman: Did it surprise you when we had that big run-up in commodity prices and then the collapse, and in some cases the retracement gave back all if not more of the original move? Did you think that was going to happen?
Bauer: I didn’t think the run-up was going to be as dramatic as it was; in particular, in cotton there was a two-year move in two days, and what happened is a lot of the legitimate farmers, producers who were depending on ... they’re selling their crop before it’s even planted, and all of a sudden the price goes up dramatically they get a margin call, and typically the bank would meet that margin call, but now the bank …
Norman: They got the credit crunch.
Bauer: … they got a credit problem. The bank is saying, OK, we’ll loan you the money, but at X outrageous percent. The farmer is never going to make a profit on his crop if he does that. So a lot of the merchants got caught with large short positions that needed to be financed and in going to the banks, they just discovered that there was a credit crunch, and so positions had to be covered at the top. That brought the thing right back down.
Norman: When you and I were traders – well you still are – but I mean back in the ’80s where you had … the markets were … you had the trade, you had people in the business, and then you had the professional speculators and they were there; they traded on the long side, they traded on the short side – there seemed to be more of a balance. Now what you have, it seems to me – and it came about with the advent of these index funds, these long-only vehicles – like a form of almost … you can call it hoarding. I mean, billions and billions of dollars, and you talked about how small these markets are relative to gold and oil, and certainly relative to equities or bond markets which are limitless.
Bauer: Sure, and then the currency markets.
orman: Right, so there is that danger there, isn’t it?
Bauer: Without a doubt. I think the danger expressed itself when we saw the dramatic price rise last year. It’s almost like there’s a vacuum created on either side of the marketplace. The cotton market hasn’t been the same since last year and we’ve seen another run-up of 20 cents this past couple of months. We peaked a little over 60-some-odd cents, and now it’s backed off. Today it was down; when I left it was down about $2.40, and they still have limits in cotton, believe it or not, of 3 cents. So that market is being pushed around purely by speculation, and the long liquidation is what’s causing it to come off right now.
We were talking about coffee, we talked about sugar a little bit, and cotton, and a little bit about OJ. Let me also mention cocoa. Cocoa was a market that was much higher last year, actually reached some very high levels. This year it’s the only component of the soft markets that is actually lower over the course of the year.
Norman: Is it attractive from a buy perspective now? If you wanted to get in – if that’s the one relative under-performer to the others – would you want to get into that or you stay?
Bauer: It’s interesting you would ask that.
Norman: I only ask interesting questions.
Bauer: I’m of the opinion that cocoa is probably not as friendly, let’s say, as the other markets. I would actually be looking on the short side of the cocoa market. It’s kind of being brought up because of the weakness in the dollar. The weakness in the dollar has dictated a lot of the near-term action in these markets in addition to the flow of funds, and the flow of funds is coming in because, as you pointed out, long only, long only.
Norman: Here’s something I’m curious about. Last year, last July, there were several bills in Congress to limit speculation; none of them passed. Are the exchanges concerned about that? Because obviously it would hurt their businesses. But by the same token, these bills could come up again, if we start to see prices of gasoline and other commodities and food start to go through the roof. There’s political pressure that is brought to bear by the citizenry on their representatives to do something. Do you think we’ll see something like that where there will be restrictions put in place on speculation?
Bauer: I really don’t want to see anything like that happen. These markets need speculation in order to exist.
Norman: But do they need it to this degree? I agree that speculation serves a function.
Bauer: In the old days, speculation was someone willing to take the risk. Today when you have, say, pension funds investing in the marketplace, the pension fund might be backed up by the taxpayer in some instance, believe it or not, so there’s almost like a built-in put option against the guy’s portfolio. If he loses money, well, the taxpayers are still going to have to pay. That doesn’t make any sense.
Norman: These things are long-only again. Again, going back to the day when you and I were trading, we go up, we shout, we go long-only.
Bauer: It’s great as it’s going up, but when you try to get out, you need a speculator on the other side.
Norman: All right; well there you have it. Jurgens, it was great; it was a pleasure seeing you again. Jurgens Bauer here, from Pit Guru and also from the IntercontinentalExchange. That’s it for my interview today, but a lot more on this interview series as we have brought to you. In the meantime, this is Mike Norman. Have a great day, take care.
Jurgens, thanks very much for coming by; really, it’s great. Like I said, you’re sort of an anachronism, and you and I go back. We know each other from the days of the COMEX and the NYMEX back in the ’80s, so it’s great to see you again; I haven’t seen you in a long time.
It’s great to have you here because you cover an area … the soft commodity area – we’re talking about coffee, sugar, cocoa, orange juice, cotton … really a specialized focus there. First, I’m very curious to find out: What’s it like down on the floor? Everything is electronic nowadays.
Jurgens Bauer, PitGuru.com/soft commodity analyst, Intercontinental Exchange (Bauer): Well, it’s a lot different from the old days; the futures pits are electronic. I’ve always been an options guy, and one of the things that’s still available for floor traders is the option markets, so we still have pits.
Norman: Why is that? Is that because the options are just such a specialized thing that you really need to have a human, somebody in there to work with?
Bauer: Don’t I wish. I think probably a better answer to is that the information flow that has to go back and forth every time there’s a minute change in the price … when you’re talking about not just hundreds of options … then you’ve got the multiple combinations of this option against that option, this spread against this spread, you’ve got fences and straddles and strangles and all this stuff, and there’s too much information.
Norman: It’s not a plain-vanilla type of purchase … a futures contract, short a futures contract.
Bauer: If one of the exchanges has come up with a successful option platform which could be then utilized to transact business, I wouldn’t be doing what I’m doing on the trading floor. Currently that doesn’t exist. That’s not to say that it won’t happen at some point, but it just doesn’t exist. And for now I think the window of opportunity, shall we say, is going to continue for at least another three, maybe seven more years.
Norman: All right. Let’s talk about your markets. You are the soft analyst for Pit Guru, and we’ve seen recently again some of these markets really start to perk up. What is behind this? It’s sort of a curious thing to watch, because you look at economic activity here in the United States, around the world – still very tepid, very weak. Why are these commodity prices rising? Is there a fundamental reason behind this, or is it again fund speculation?
Bauer: It’s a good question. I would have to answer that by looking at each individual market, and I can provide you with fundamental reasons, for instance, for sugar.
Norman: Let’s go; let’s run them down.
Bauer: Sugar price has gone up because the production on a world scale is lower, and consumption is certainly going to remain the same if not go up – increase as populations increase, and diets go up, diets improve. So I would have to say there’s a powerful fundamental force at work.
Norman: Is sugar also involved in this alternative energy theme, because don’t they use sugar in Brazil for the making of ethanol?
Bauer: Yes; in Brazil they do. In this country, we’ve been … how do I say this politically correct now … we use corn, OK? My understanding is it’s less efficient and more costly than it would be from sugar. Yes; so that force is at work as well.
In cotton, we had pretty good exports going, we had much-reduced crop size, not only in this country but tapered off around the world.
Norman: Is that because when we had the boom in the commodities like corn and wheat and soybeans two years ago, cotton acreage was reduced so that farmers used it to plant the more-lucrative crops?
Bauer: Sure, right. Not only that, you had … so those are markets … in coffee – right now my personal favorite market.
orman: Now coffee is at, what, like a four-month high right now?
Bauer: Yeah, coffee, made a high just shy of 140 last week; pretty much up every day last week until Friday, and then we saw some profit-taking. You remember those days when you get a little profit-taking after an up week all week? Today it was down, but you can’t keep it down.
Norman: Well, I certainly drink a lot of it, not that it’s so much of a contributory factor.
Bauer: And that’s why it’s bullish: because Mike drinks a lot. No. But in addition to all this, you also have a weaker dollar, and that’s been a major factor in the soft markets. We’ve also seen a lot of commodity fund investment.
Norman: Yeah; that’s what I want to talk about, because you deal a lot as a floor broker, you deal with people in the trade, people in the physical business of either producing or merchandising these commodities that you’re talking about. What do they say about the speculative element in the markets? Are they concerned about it, do they think it’s a good thing; what’s their view?
Bauer: I would have to say the overwhelming majority, especially in cotton, were very much opposed to the enhanced speculation.
Norman: What’s happening? Is it creating a distortion, is it making it harder for them to run their own business in terms of hedging and planning?
Bauer: Well, I don’t want to say that the traders used to use the market as an ATM machine, but I will tell you that they had a distinct advantage because they knew what was going on and they could use that to their advantage. You don’t want to say it’s insider trading or anything, it’s their business, and these markets were created for them to offset their price risk.
Norman: Nobody could know the market better than someone who’s physically involved in either producing or merchandising it, that’s clear.
Bauer: When you had this big influx of all this fund money, it became overwhelming to some of the boutique markets that we really have in the softs; they’re not the huge big-volume markets that you have. Sugar might be an exception when you compare it to some of the average daily volumes in cotton, coffee, cocoa and orange juice, but they’re certainly not as large or as deep of a market as oil or gold – what you used to trade.
Norman: It’s much easier to manipulate, in other words, to push around, absolutely, and the amount of money flowing into these funds and also these new instruments – ETFs that allow investors to buy into it like a stock. These are these passive long-only commodity investments that tremendous amounts of money are flowing into. So how does the outlook now … let’s give a little bit of an outlook now, let’s say, for the next six months or the remainder of this year … is this rally going to last, is it going to extend or are we going to plateau out?
Bauer: Well, I really wish I knew the answer to that, but I would have to say - from my own perspective right now - I believe coffee has got 1.50, 1.70 in it before the year is over, in all likelihood, because we do have a legitimate supply problem there. We’re approaching the season where you’re going to have the potential for frost in the Southern Hemisphere, which is where Brazil and etc. … and again you’re seeing the added component of the weaker dollar. In the case of cotton.
Norman: What about orange juice and cocoa?
Bauer: All right. First let me tell you that OJ had been undervalued last year; it’s a smaller market. I think that there’s concerns this year; we had a lot of concerns about drought conditions, although there had been rains this past week pretty much every day in Florida in the growing areas, which ought to take care of a lot that moisture concern. Demand had also fallen off, but I think demand is returning to its historical levels. I tend to believe that, again, we’re going to see prices kind of return to a normal level; in other words, head north of a dollar, head towards $1.15, currently trading in the low 90s.
Norman: Did it surprise you when we had that big run-up in commodity prices and then the collapse, and in some cases the retracement gave back all if not more of the original move? Did you think that was going to happen?
Bauer: I didn’t think the run-up was going to be as dramatic as it was; in particular, in cotton there was a two-year move in two days, and what happened is a lot of the legitimate farmers, producers who were depending on ... they’re selling their crop before it’s even planted, and all of a sudden the price goes up dramatically they get a margin call, and typically the bank would meet that margin call, but now the bank …
Norman: They got the credit crunch.
Bauer: … they got a credit problem. The bank is saying, OK, we’ll loan you the money, but at X outrageous percent. The farmer is never going to make a profit on his crop if he does that. So a lot of the merchants got caught with large short positions that needed to be financed and in going to the banks, they just discovered that there was a credit crunch, and so positions had to be covered at the top. That brought the thing right back down.
Norman: When you and I were traders – well you still are – but I mean back in the ’80s where you had … the markets were … you had the trade, you had people in the business, and then you had the professional speculators and they were there; they traded on the long side, they traded on the short side – there seemed to be more of a balance. Now what you have, it seems to me – and it came about with the advent of these index funds, these long-only vehicles – like a form of almost … you can call it hoarding. I mean, billions and billions of dollars, and you talked about how small these markets are relative to gold and oil, and certainly relative to equities or bond markets which are limitless.
Bauer: Sure, and then the currency markets.
orman: Right, so there is that danger there, isn’t it?
Bauer: Without a doubt. I think the danger expressed itself when we saw the dramatic price rise last year. It’s almost like there’s a vacuum created on either side of the marketplace. The cotton market hasn’t been the same since last year and we’ve seen another run-up of 20 cents this past couple of months. We peaked a little over 60-some-odd cents, and now it’s backed off. Today it was down; when I left it was down about $2.40, and they still have limits in cotton, believe it or not, of 3 cents. So that market is being pushed around purely by speculation, and the long liquidation is what’s causing it to come off right now.
We were talking about coffee, we talked about sugar a little bit, and cotton, and a little bit about OJ. Let me also mention cocoa. Cocoa was a market that was much higher last year, actually reached some very high levels. This year it’s the only component of the soft markets that is actually lower over the course of the year.
Norman: Is it attractive from a buy perspective now? If you wanted to get in – if that’s the one relative under-performer to the others – would you want to get into that or you stay?
Bauer: It’s interesting you would ask that.
Norman: I only ask interesting questions.
Bauer: I’m of the opinion that cocoa is probably not as friendly, let’s say, as the other markets. I would actually be looking on the short side of the cocoa market. It’s kind of being brought up because of the weakness in the dollar. The weakness in the dollar has dictated a lot of the near-term action in these markets in addition to the flow of funds, and the flow of funds is coming in because, as you pointed out, long only, long only.
Norman: Here’s something I’m curious about. Last year, last July, there were several bills in Congress to limit speculation; none of them passed. Are the exchanges concerned about that? Because obviously it would hurt their businesses. But by the same token, these bills could come up again, if we start to see prices of gasoline and other commodities and food start to go through the roof. There’s political pressure that is brought to bear by the citizenry on their representatives to do something. Do you think we’ll see something like that where there will be restrictions put in place on speculation?
Bauer: I really don’t want to see anything like that happen. These markets need speculation in order to exist.
Norman: But do they need it to this degree? I agree that speculation serves a function.
Bauer: In the old days, speculation was someone willing to take the risk. Today when you have, say, pension funds investing in the marketplace, the pension fund might be backed up by the taxpayer in some instance, believe it or not, so there’s almost like a built-in put option against the guy’s portfolio. If he loses money, well, the taxpayers are still going to have to pay. That doesn’t make any sense.
Norman: These things are long-only again. Again, going back to the day when you and I were trading, we go up, we shout, we go long-only.
Bauer: It’s great as it’s going up, but when you try to get out, you need a speculator on the other side.
Norman: All right; well there you have it. Jurgens, it was great; it was a pleasure seeing you again. Jurgens Bauer here, from Pit Guru and also from the IntercontinentalExchange. That’s it for my interview today, but a lot more on this interview series as we have brought to you. In the meantime, this is Mike Norman. Have a great day, take care.
Commodities Still In Correction Mode
Futures popped a few points as continuing claims for unemployment recorded its first weekly drop since January. While last week was a record high (about 6.8 m), this at least is a step in the right direction.
Elsewhere:
1) The commodity correction continues. Commodities are down fractionally again today; while commodities are only down single digits in the last week or so (copper down 9 percent, gold down 5 percent, aluminum down 4 percent, oil down 3 percent), commodity stocks are seeing much bigger declines--big commodity names like Potash [POT 92.08 4.81 (+5.51%) ], Alcoa ,[AA 10.00 -0.02 (-0.2%) ] US Steel,[X 34.54 0.42 (+1.23%) ] & Consol Energy [CNX 34.54 1.52 (+4.6%) ] are down 13 to 17 percent.
Reappoint Bernanke, He's a 'National Hero': Welch
The Russian stock market is down another 4 percent this morning; it has dropped 15 percent since hitting an 8-month high in the beginning of June.
The World Bank also raised its growth forecast for China in 2009 to 7.2 percent from a 6.5 percent forecast made in March.
Bear in mind that in the first quarter they grew only 6.1 percent, the slowest rate of growth since 1999. This is HALF the rate of growth China had in 2007.
China Could Buy More US Debt: Ex-C. Banker
What is not clear is whether the Chinese consumer can take up even a fraction of the slack from the decline in exports; if they cannot the LME warehouses full of copper and aluminum will back up quickly.
2) Winnebago Industries [WGO 6.55 -0.21 (-3.11%) ] posted a bigger-than-expected Q3 loss amid a 62 percent decline in motor home deliveries, lower pricing, and higher production inefficiencies. Hit hard by weaker demand during the recession, the RV manufacturer sales of its vehicles fall 64 percent!
3) Q4 2009 earnings from J.M. Smucker [SJM 47.94 0.34 (+0.71%) ] handily beat estimates after the consumer foods maker saw a strong 16 percent rise in volume out of its recently-acquired Folgers coffee brand. This far exceeded the flat volumes from its other well-known consumer brands (Jif, Knott's Berry Farm, etc.), where sales still rose 5 percent due to higher pricing. Guidance for the current 2010 fiscal year was raised to $3.65-$3.80 from $3.62-3.72, above the analyst forecast of $3.37.
4) Pier 1 [PIR 1.86 0.09 (+5.08%) ] soars 24 percent (it's a $2 stock, bear in mind) in pre-market trading after its results surprised the Street. The home furnishings retailer posted a Q1 profit, but that was due to significant gains from the repurchase of debt. Sales are still weak: same-store sales declined 7.5 percent in the quarter.
5) Shares of Lions Gate Entertainment [LGF 5.37 -0.14 (-2.54%) ] rise 7 percent pre-open after investor Carl Icahn boosted his stake in the entertainment studio to 16.9 percent from 3.7 percent.
6) Liz Claiborne [LIZ 2.84 -0.18 (-5.96%) ] lowered its guidance, expecting a bigger than expected loss this quarter.
Elsewhere:
1) The commodity correction continues. Commodities are down fractionally again today; while commodities are only down single digits in the last week or so (copper down 9 percent, gold down 5 percent, aluminum down 4 percent, oil down 3 percent), commodity stocks are seeing much bigger declines--big commodity names like Potash [POT 92.08 4.81 (+5.51%) ], Alcoa ,[AA 10.00 -0.02 (-0.2%) ] US Steel,[X 34.54 0.42 (+1.23%) ] & Consol Energy [CNX 34.54 1.52 (+4.6%) ] are down 13 to 17 percent.
Reappoint Bernanke, He's a 'National Hero': Welch
The Russian stock market is down another 4 percent this morning; it has dropped 15 percent since hitting an 8-month high in the beginning of June.
The World Bank also raised its growth forecast for China in 2009 to 7.2 percent from a 6.5 percent forecast made in March.
Bear in mind that in the first quarter they grew only 6.1 percent, the slowest rate of growth since 1999. This is HALF the rate of growth China had in 2007.
China Could Buy More US Debt: Ex-C. Banker
What is not clear is whether the Chinese consumer can take up even a fraction of the slack from the decline in exports; if they cannot the LME warehouses full of copper and aluminum will back up quickly.
2) Winnebago Industries [WGO 6.55 -0.21 (-3.11%) ] posted a bigger-than-expected Q3 loss amid a 62 percent decline in motor home deliveries, lower pricing, and higher production inefficiencies. Hit hard by weaker demand during the recession, the RV manufacturer sales of its vehicles fall 64 percent!
3) Q4 2009 earnings from J.M. Smucker [SJM 47.94 0.34 (+0.71%) ] handily beat estimates after the consumer foods maker saw a strong 16 percent rise in volume out of its recently-acquired Folgers coffee brand. This far exceeded the flat volumes from its other well-known consumer brands (Jif, Knott's Berry Farm, etc.), where sales still rose 5 percent due to higher pricing. Guidance for the current 2010 fiscal year was raised to $3.65-$3.80 from $3.62-3.72, above the analyst forecast of $3.37.
4) Pier 1 [PIR 1.86 0.09 (+5.08%) ] soars 24 percent (it's a $2 stock, bear in mind) in pre-market trading after its results surprised the Street. The home furnishings retailer posted a Q1 profit, but that was due to significant gains from the repurchase of debt. Sales are still weak: same-store sales declined 7.5 percent in the quarter.
5) Shares of Lions Gate Entertainment [LGF 5.37 -0.14 (-2.54%) ] rise 7 percent pre-open after investor Carl Icahn boosted his stake in the entertainment studio to 16.9 percent from 3.7 percent.
6) Liz Claiborne [LIZ 2.84 -0.18 (-5.96%) ] lowered its guidance, expecting a bigger than expected loss this quarter.
Tuesday, June 9, 2009
Seeds Of Pain
Interesting trade hitting the tape today: A bearish investor made a $1.5 million bet that Mosaic [MOS 53.73 1.97 (+3.81%) ] stock would trade below $35 before the third week in September, purchasing over 14,000 contracts of the 35-strike puts. Yikes!!
According to Mike Khouw, "Options Action" star and head of equity derivatives trading for Cantor Fitzgerald, the trade was not done in conjunction with stock. "To put this trade on, you must think something really bad is going to happen soon," said Khouw.
Interesting trade hitting the tape today: A bearish investor made a $1.5 million bet that Mosaic [MOS 53.73 1.97 (+3.81%) ] stock would trade below $35 before the third week in September, purchasing over 14,000 contracts of the 35-strike puts. Yikes!!
According to Mike Khouw, "Options Action" star and head of equity derivatives trading for Cantor Fitzgerald, the trade was not done in conjunction with stock. "To put this trade on, you must think something really bad is going to happen soon," said Khouw.
According to Mike Khouw, "Options Action" star and head of equity derivatives trading for Cantor Fitzgerald, the trade was not done in conjunction with stock. "To put this trade on, you must think something really bad is going to happen soon," said Khouw.
Interesting trade hitting the tape today: A bearish investor made a $1.5 million bet that Mosaic [MOS 53.73 1.97 (+3.81%) ] stock would trade below $35 before the third week in September, purchasing over 14,000 contracts of the 35-strike puts. Yikes!!
According to Mike Khouw, "Options Action" star and head of equity derivatives trading for Cantor Fitzgerald, the trade was not done in conjunction with stock. "To put this trade on, you must think something really bad is going to happen soon," said Khouw.
Monday, June 1, 2009
Why Citigroup Is Bullish on Fertilizers
Grain prices will move higher, according to Citigroup Global Markets analyst P.J. Juvekar. He thinks that will lead to multiple expansion in the fertilizer sector, and has turned bullish on the whole group. He upgraded Agrium Inc. (AGU), Mosaic Co. (MOS), and Potash Corp. of Saskatchewan Inc. (POT), and made hefty price target increases to each one.
Put simply, Mr. Juvekar believes that the strong fundamentals of the agriculture sector should trump concerns about the China potash contract. Investors have worried that potash prices could fall below last year's settlement with China of $575 a tonne.
As an alternative for worried investors, he offered up three very positive signs for the market:
- Grain supplies are tight. He believes that there is no "cushion" against an unforeseen event (such as bad weather) that could have a huge impact on prices.
- The U.S. planting season is behind schedule. He cited a report that U.S. corn plantings are 62% complete, compared to an average of 85% at this point for 2004 to 2008.
- Market stabilization and easing of deflation concerns. That is good for all commodities.
Mr. Juvekar upgraded Potash Corp. and Mosaic to "buy," and Agrium to "hold". He raised his price targets on each one by at least 50%, with Potash Corp. rising to $145.00 a share (from $83.00), Mosaic rising to $72.00 a share (from $48.00), and Agrium rising to $55.00 a share (from $36.00).
Citi also upgraded Israel Chemicals Ltd. (ISCHF.PK) and K+S AG as part of a global call on fertilizers.
Put simply, Mr. Juvekar believes that the strong fundamentals of the agriculture sector should trump concerns about the China potash contract. Investors have worried that potash prices could fall below last year's settlement with China of $575 a tonne.
As an alternative for worried investors, he offered up three very positive signs for the market:
- Grain supplies are tight. He believes that there is no "cushion" against an unforeseen event (such as bad weather) that could have a huge impact on prices.
- The U.S. planting season is behind schedule. He cited a report that U.S. corn plantings are 62% complete, compared to an average of 85% at this point for 2004 to 2008.
- Market stabilization and easing of deflation concerns. That is good for all commodities.
Mr. Juvekar upgraded Potash Corp. and Mosaic to "buy," and Agrium to "hold". He raised his price targets on each one by at least 50%, with Potash Corp. rising to $145.00 a share (from $83.00), Mosaic rising to $72.00 a share (from $48.00), and Agrium rising to $55.00 a share (from $36.00).
Citi also upgraded Israel Chemicals Ltd. (ISCHF.PK) and K+S AG as part of a global call on fertilizers.
Monsanto stock price decline overdone - Barron's
NEW YORK, May 31 (Reuters) - Last week's decline in Monsanto Co's (MON.N) stock price after the world's largest seed company lowered its earnings forecast is probably overdone, Barron's reported in its June 1 edition.\
UBS' Don Carson said that even with the revised numbers, Monsanto shares are headed to above $115 within 12 months, the business weekly reported. Monsanto shares closed at $79 on Friday on the New York Stock Exchange.
A return to dry fields will also mitigate the negative effect that wet weather had on sales of its weed killer Roundup, Barron's said.
Monsanto said last week that tougher competition in the herbicide business would push fiscal-year results to about $4.40 per share, the low end of its earnings forecast.
UBS' Don Carson said that even with the revised numbers, Monsanto shares are headed to above $115 within 12 months, the business weekly reported. Monsanto shares closed at $79 on Friday on the New York Stock Exchange.
A return to dry fields will also mitigate the negative effect that wet weather had on sales of its weed killer Roundup, Barron's said.
Monsanto said last week that tougher competition in the herbicide business would push fiscal-year results to about $4.40 per share, the low end of its earnings forecast.
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