Intrepid Potash(IPI Quote - Cramer on IPI - Stock Picks) closed at $18.45, up 63 cents or 3.54%. On Friday, UBS initiated coverage of four fertilizer companies, rating Intrepid a buy with a price target of $27. UBS also started coverage of Mosaic with a buy rating and price target of $63. Mosaic closed Tuesday at $41.98, down 76 cents or 1.78%.
UBS also started coverage of Terra Industries(TRA Quote - Cramer on TRA - Stock Picks) and CF Holdings(CF Quote - Cramer on CF - Stock Picks) at neutral. Terra closed at $28.09, up 81 cents or 3% Tuesday; CF finished at $71.13, up 74 cents or 1.05%.
Jud Pyle of TheStreet.com took a look at call-spread selling in Monsanto(MON Quote - Cramer on MON - Stock Picks) and Potash(POT Quote - Cramer on POT - Stock Picks). Monsanto closed at $83.10, up 34 cents or 0.41%; Potash finished at $80.81, down 98 cents or 1.20%.
Scotts Miracle Gro(SMG Quote - Cramer on SMG - Stock Picks) finished the day at $34.70, up 15 cents or 0.43%.
Tuesday, March 31, 2009
Options: Call-Spread Selling in Two Ags
We had interesting options action in two agricultural commodity names this morning right out of the gate. In Monsanto (MON Quote - Cramer on MON - Stock Picks) someone sold 5,500 May 95/105 call spreads for about $1.40, and in Potash (POT Quote - Cramer on POT - Stock Picks), there was a seller of 13,000 April 90/95 call spreads for around $1.05. Monsanto is a seed, herbicide and biotech giant with earnings due Thursday, April 2. The main business of Potash is, of course, potash, that mineral salt that contains potassium in a water-soluble form and is so crucial for crop fertilizer
Both of these trades occurred by 10 a.m. EST. With no real movement in the underlying stocks at the open, they tend to indicate large traders with clear intentions. Precisely what these intentions are, we can't be sure. But, as always, it pays to look at what the big money is doing in options and likely reasons why, especially when the stocks are quiet.
First, let's look at the fundamental news environment. We need go no further than "farmers' intentions" to get a handle on what investors might be up to. In the annual USDA report on 2009 planting intentions and quarterly stock data out this morning, the bottom line was that less corn will be planted this year. Some of that acreage will be replaced by soybeans since they cost about 30% less than corn to grow, and some will be idled.
However, since the value of the corn crop at $47 billion in 2008 was 1.7 times the size of the soybean crop, less corn equals less demand for seeds and fertilizer and this could hit sales at MON and POT.
The government report was not as bad as some were expecting, and making forecasts here is tough, with so many variables, but word is that farmers are feeling the pinch of paying more to grow crops with their prices falling
Citigroup threw in its 2-cents this morning by reducing 2009 estimates for both names.
Now let's look at what the call-spread sellers might be watching on an even shorter-term basis. Both MON and POT have had a great run off of the November-December lows. In fact, commodity names like these, along with technology, led the rally and did not make new lows in March with the rest of the market.
For investors who want to remain long these stocks into the spring planting and summer growing seasons, and who want to generate a little income while they consolidate some of their nice gains, selling upside call spreads seems like their kind of dish.
Whether we decide to follow trades like these at some point, looking at credit spreads is a great window on risk/reward in options trading. Volatility in both names is about average, consistent with the current environment, so another way to view the risk/reward is by using a probability calculator.
I used one at OptionsHouse.com that gave me this analysis: with MON at-the-money volatility of 56% for May options, there is about a 20% chance of the stock finishing above breakeven ($96.40) on the 95/105 call spread. And for POT, with ATM volatility of 78%, there is about a 24% chance of the stock ending above breakeven ($91.05) by April expiration on the 90/95 call spread. Let's see what we learn watching the agricultural commodity experts trade. .. thestreet/.com
Both of these trades occurred by 10 a.m. EST. With no real movement in the underlying stocks at the open, they tend to indicate large traders with clear intentions. Precisely what these intentions are, we can't be sure. But, as always, it pays to look at what the big money is doing in options and likely reasons why, especially when the stocks are quiet.
First, let's look at the fundamental news environment. We need go no further than "farmers' intentions" to get a handle on what investors might be up to. In the annual USDA report on 2009 planting intentions and quarterly stock data out this morning, the bottom line was that less corn will be planted this year. Some of that acreage will be replaced by soybeans since they cost about 30% less than corn to grow, and some will be idled.
However, since the value of the corn crop at $47 billion in 2008 was 1.7 times the size of the soybean crop, less corn equals less demand for seeds and fertilizer and this could hit sales at MON and POT.
The government report was not as bad as some were expecting, and making forecasts here is tough, with so many variables, but word is that farmers are feeling the pinch of paying more to grow crops with their prices falling
Citigroup threw in its 2-cents this morning by reducing 2009 estimates for both names.
Now let's look at what the call-spread sellers might be watching on an even shorter-term basis. Both MON and POT have had a great run off of the November-December lows. In fact, commodity names like these, along with technology, led the rally and did not make new lows in March with the rest of the market.
For investors who want to remain long these stocks into the spring planting and summer growing seasons, and who want to generate a little income while they consolidate some of their nice gains, selling upside call spreads seems like their kind of dish.
Whether we decide to follow trades like these at some point, looking at credit spreads is a great window on risk/reward in options trading. Volatility in both names is about average, consistent with the current environment, so another way to view the risk/reward is by using a probability calculator.
I used one at OptionsHouse.com that gave me this analysis: with MON at-the-money volatility of 56% for May options, there is about a 20% chance of the stock finishing above breakeven ($96.40) on the 95/105 call spread. And for POT, with ATM volatility of 78%, there is about a 24% chance of the stock ending above breakeven ($91.05) by April expiration on the 90/95 call spread. Let's see what we learn watching the agricultural commodity experts trade. .. thestreet/.com
Monday, March 30, 2009
Five Reasons to Invest in Agriculture
1. “Quantitative Easing”
US government finally began its “Quantitative Easing” (printing money to buy treasures and other bad assets) process last Wednesday. No wonder SPDR Gold Shares (GLD) holdings rose to a record 1,084-tons last week, up 37% from eight weeks ago. As the world becomes less and less secure in normal investment classes, and people lose faith and confidence in paper money, people turn to hard assets and commodities such as Gold, oil, and agriculture, etc. If GLD and United States Oil (USO) can be up 30% over the last few months, there is no reason why PowerShares DB Agriculture (DBA) was only up 9% from its low.
2. The Consumer Is Back
Last Friday the Commerce Department reported that consumer spending edged up 0.2 percent in February, which follows a huge 1 percent jump in January. Consumer spending accounts for about 70 percent of US economic activity. This seems to be a good sign for recovery. It is easy to free credit because the Fed can always pump in more money (the sky is the limit). However, it is much more difficult for people to spend.
3. Increased Demand from Developing World
Changes in global demand resulting from population growth and changes in standards of living will no doubt push up agriculture price. As Kevin Phillips, author of American Dynasty and American Theocracy, pointed out in his new book Bad Monday, in the US, food represents 14% of the consumer price index, but the ratio is much higher in China (33%) and India (46%). In other words, China and India spend much more of their income on food than the US. Even in a recession, people have to eat.
4. “Agflation”
Two economists at Merrill Lynch coined the term “Agflation” in Spring 2007. It means an increase in the price of food that occurs not only from increased demand from human consumption, but also from its use as an alternative energy resource. As oil stands over $52 now, demand from the biofuels industry should also help demand for agricultural products. Also, “peak oil” means the price increases for grain, soybean, and corn may be more long-lived.
5. Other Unpredictable Factors
Any unpredictable surprises will push up agriculture's price, such as adverse weather conditions, farmer planting decisions, government farm programs and policies, even the occurrence of plant disease, etc.
There are quite a few ways to play with Agriculture. You can buy related industries such as the Agricultural Chemicals industry. Monsanto (MON) is the biggest player in this field, with market cap of $48 billion. It produces corn, soybeans, canola, cottonseeds, vegetable and fruit seeds as well as provides agricultural products for farmers. Potash Corp. of Saskatchewan (POT) is the 2nd largest, with market cap of $26.4B.
The other direct related industry is Farm Products industry. Archer-Daniels-Midland (ADM) is the biggest one, with market cap of $18.6B. It procures, transports, stores, processes, and merchandises agricultural commodities and products. Bunge Ltd. (BG) is a distant 2nd, with market cap of $7.2B.
Agriculture business is capital intensive in nature. In today’s credit crunch market, limitations on access to external financing could adversely affect companies’ operating results. These companies require substantial capital to maintain and upgrade their storage facilities, processing plants, refineries, mills, ports and transportation to keep pace with technological development, regulation requirements and safety standards in the industry, just to name a few.
I chose DBA instead. It is composed of futures contracts on some of the most liquid and widely traded agricultural commodities such as corn, wheat, soybeans and sugar. It jumped 1.71% on 03/19/09 in more than five times average volume.
If history is any guideline, you might as well choose Agricultural Chemicals industry such as MON or POT, since they over-performed DBA by more than 50% over the last 2 years. But look at volatility in the chart above, which conservative investors can’t stand.
After all, even US CPI is using “core” measurement that excludes food and energy because of their “volatility”..seeking alpha
US government finally began its “Quantitative Easing” (printing money to buy treasures and other bad assets) process last Wednesday. No wonder SPDR Gold Shares (GLD) holdings rose to a record 1,084-tons last week, up 37% from eight weeks ago. As the world becomes less and less secure in normal investment classes, and people lose faith and confidence in paper money, people turn to hard assets and commodities such as Gold, oil, and agriculture, etc. If GLD and United States Oil (USO) can be up 30% over the last few months, there is no reason why PowerShares DB Agriculture (DBA) was only up 9% from its low.
2. The Consumer Is Back
Last Friday the Commerce Department reported that consumer spending edged up 0.2 percent in February, which follows a huge 1 percent jump in January. Consumer spending accounts for about 70 percent of US economic activity. This seems to be a good sign for recovery. It is easy to free credit because the Fed can always pump in more money (the sky is the limit). However, it is much more difficult for people to spend.
3. Increased Demand from Developing World
Changes in global demand resulting from population growth and changes in standards of living will no doubt push up agriculture price. As Kevin Phillips, author of American Dynasty and American Theocracy, pointed out in his new book Bad Monday, in the US, food represents 14% of the consumer price index, but the ratio is much higher in China (33%) and India (46%). In other words, China and India spend much more of their income on food than the US. Even in a recession, people have to eat.
4. “Agflation”
Two economists at Merrill Lynch coined the term “Agflation” in Spring 2007. It means an increase in the price of food that occurs not only from increased demand from human consumption, but also from its use as an alternative energy resource. As oil stands over $52 now, demand from the biofuels industry should also help demand for agricultural products. Also, “peak oil” means the price increases for grain, soybean, and corn may be more long-lived.
5. Other Unpredictable Factors
Any unpredictable surprises will push up agriculture's price, such as adverse weather conditions, farmer planting decisions, government farm programs and policies, even the occurrence of plant disease, etc.
There are quite a few ways to play with Agriculture. You can buy related industries such as the Agricultural Chemicals industry. Monsanto (MON) is the biggest player in this field, with market cap of $48 billion. It produces corn, soybeans, canola, cottonseeds, vegetable and fruit seeds as well as provides agricultural products for farmers. Potash Corp. of Saskatchewan (POT) is the 2nd largest, with market cap of $26.4B.
The other direct related industry is Farm Products industry. Archer-Daniels-Midland (ADM) is the biggest one, with market cap of $18.6B. It procures, transports, stores, processes, and merchandises agricultural commodities and products. Bunge Ltd. (BG) is a distant 2nd, with market cap of $7.2B.
Agriculture business is capital intensive in nature. In today’s credit crunch market, limitations on access to external financing could adversely affect companies’ operating results. These companies require substantial capital to maintain and upgrade their storage facilities, processing plants, refineries, mills, ports and transportation to keep pace with technological development, regulation requirements and safety standards in the industry, just to name a few.
I chose DBA instead. It is composed of futures contracts on some of the most liquid and widely traded agricultural commodities such as corn, wheat, soybeans and sugar. It jumped 1.71% on 03/19/09 in more than five times average volume.
If history is any guideline, you might as well choose Agricultural Chemicals industry such as MON or POT, since they over-performed DBA by more than 50% over the last 2 years. But look at volatility in the chart above, which conservative investors can’t stand.
After all, even US CPI is using “core” measurement that excludes food and energy because of their “volatility”..seeking alpha
CF Industries - Eat or Be Eaten?
The saga of what is happening with CF Industries (NYSE: CF - News) took another turn today as Agrium (NYSE: AGU - News) boosted the cash component of its offer by 10% (from $31.70 to $35), which will add $160 million to its bid (from $72 to $75). Terra (NYSE: TRA - News), meanwhile, has rejected CF Industries' offer to take over the company, and a hostile effort will ensue at the next board meeting at CF Industries.
Right now, it is cheaper to buy than build fertilizer assets, and hence the flurry of M&A activity. (This makes one wonder if this could be a market-wide issue, as stock prices are depressed.) Fertilizer prices are mixed, as farmers are waiting for the results of the USDA acreage survey, which will occur next Tuesday.
Right now, our feeling is that Agrium will prevail and CF Industries will be eaten. The company has a fiduciary responsibility to do the best for its shareholders, who are undoubtedly looking for the best exit strategy possible after the market collapse last year.
Right now, it is cheaper to buy than build fertilizer assets, and hence the flurry of M&A activity. (This makes one wonder if this could be a market-wide issue, as stock prices are depressed.) Fertilizer prices are mixed, as farmers are waiting for the results of the USDA acreage survey, which will occur next Tuesday.
Right now, our feeling is that Agrium will prevail and CF Industries will be eaten. The company has a fiduciary responsibility to do the best for its shareholders, who are undoubtedly looking for the best exit strategy possible after the market collapse last year.
Agrium's Aggravation
Hostile bidder's stock slides as CF tells it to get lost (again). Terra, CF's target, drops as well.
Agrium can’t take rejection. Instead of walking away from its unsolicited bid for U.S. fertilizer producer CF Industries Holdings the Canadian fertilizer company keeps banging its head against the wall trying to get CF to agree to its offer.
But CF Industries Holdings (nyse: CF - news - people ) won’t, preferring instead to try to acquire rival Terra Industries (nyse: TRA - news - people ), which is just as uninterested in CF's bid as CF is in Agrium.
Agrium's shares were the big losers among the three stocks on Monday, falling more than 8.0%, a possible indication that its shareholders fear it will raise its bid for CF.
Late Sunday, CF rejected Agrium (nyse: AGU - news - people )’s revised $3.7 billion offer as “grossly inadequate.”
Earlier this month, CF turned down Agrium's original bid as inadequate and sweetened its own offer for Terra. Agrium’s bid is conditional on CF dropping its offer for Terra. (See "Investors Side With Agrium.")
On Friday, Canada-based Agrium increased its offer to $35.00 per share, plus one common share. (See “Fertilizer Bids Keep Growing.”) The cash component of the previous offer had been $31.70. (See "Agrium Tries To Woo CF Industries.") Its bid is now worth $70.19 per CF share, and it has suggested that it might raise that in a friendly deal.
CF has insisted that it is worth $100.00 per share. Chief Executive Stephen R. Wilson said the company continues to believe that pursuing its long-term strategy, which includes its proposed takeover of Terra Industries, is the best way forward.
Agrium can’t take rejection. Instead of walking away from its unsolicited bid for U.S. fertilizer producer CF Industries Holdings the Canadian fertilizer company keeps banging its head against the wall trying to get CF to agree to its offer.
But CF Industries Holdings (nyse: CF - news - people ) won’t, preferring instead to try to acquire rival Terra Industries (nyse: TRA - news - people ), which is just as uninterested in CF's bid as CF is in Agrium.
Agrium's shares were the big losers among the three stocks on Monday, falling more than 8.0%, a possible indication that its shareholders fear it will raise its bid for CF.
Late Sunday, CF rejected Agrium (nyse: AGU - news - people )’s revised $3.7 billion offer as “grossly inadequate.”
Earlier this month, CF turned down Agrium's original bid as inadequate and sweetened its own offer for Terra. Agrium’s bid is conditional on CF dropping its offer for Terra. (See "Investors Side With Agrium.")
On Friday, Canada-based Agrium increased its offer to $35.00 per share, plus one common share. (See “Fertilizer Bids Keep Growing.”) The cash component of the previous offer had been $31.70. (See "Agrium Tries To Woo CF Industries.") Its bid is now worth $70.19 per CF share, and it has suggested that it might raise that in a friendly deal.
CF has insisted that it is worth $100.00 per share. Chief Executive Stephen R. Wilson said the company continues to believe that pursuing its long-term strategy, which includes its proposed takeover of Terra Industries, is the best way forward.
Tuesday, March 24, 2009
CF Industries
CF Industries Holdings Inc. (NYSE: CF - News) has leading market shares in many key fertilizers. Strong domestic and international grain markets have produced an exceptionally high global demand for fertilizer, translating into substantially higher selling prices for all the products. The company is optimistic about its phosphate business where the market is expected to remain tight near term due to healthy offshore demand growth in India and Brazil as well as higher application rates in the U.S.
In addition, the company is likely to benefit from the proposed nitrogen facility in Peru, which will address the nitrogen demand on the west coast of Central and South America as well as Mexico, which does not have any nitrogen facility.
The company is in the midst of either being acquired by Agrium Industries or bought out by Terra Industries. As a result, we maintain our Buy rating of the stock and set a target of $75.00..zacks.com
In addition, the company is likely to benefit from the proposed nitrogen facility in Peru, which will address the nitrogen demand on the west coast of Central and South America as well as Mexico, which does not have any nitrogen facility.
The company is in the midst of either being acquired by Agrium Industries or bought out by Terra Industries. As a result, we maintain our Buy rating of the stock and set a target of $75.00..zacks.com
CF Industries Lowered to Hold
CF Industries Holdings Inc. (NYSE: CF - News) is one of the largest manufacturers and distributors of nitrogen and phosphate fertilizer products in North America. The company's operations are organized into 2 business segments: the nitrogen fertilizer and the phosphate fertilizer.
The company is in the midst of being acquired by Agrium Industries (NYSE: AGU - News) or buyout of Terra Industries (NYSE: TRA - News). However, there is weak demand and pricing in the interim period.
As a result, we rate the shares a Hold and set a target of $70.00. Currently, CF Industries Holdings is valued at 8.6x our 2009 estimate of $7.91. Our target price is 8.9x our 2009 estimate
The company is in the midst of being acquired by Agrium Industries (NYSE: AGU - News) or buyout of Terra Industries (NYSE: TRA - News). However, there is weak demand and pricing in the interim period.
As a result, we rate the shares a Hold and set a target of $70.00. Currently, CF Industries Holdings is valued at 8.6x our 2009 estimate of $7.91. Our target price is 8.9x our 2009 estimate
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