You Think the Fed Is Confusing? Look at the Potash Industry
This was just one day after POT shares closed 16% lower on the initial news. Including Wednesday's 8.3% rout shares are down almost 25% in 48 hours.
This in spite of POT receiving permission Wednesday from the Toronto Stock Exchange to purchase up to 43,345,992 shares at its discretion between Aug. 2, 2013, and Aug. 1, 2014, subject to "a maximum aggregate amount of $2 billion."
Potash intends to retire all the shares it buys as part of this big-time repurchase program. The other big-name potash producers are Mosaic Company (MOS), down over 23% in two days and Agrium (AGU) which wasn't hit as hard since it deals with a wide assortment of other agricultural products and services.
The following five-year price chart compares shares of POT and MOS. It's a sad chart but may also eventually spell opportunity for bargain-hunters and bottom-feeders.POT data by YCharts
. Stories and rumors abound concerning possible new potash coalitions forming, including a suggestion that URALL might consider joining with Belarus to form a Swiss-based trading company. Whatever happens, few analysts disagree that new global potash projects are likely to be delayed. Mark Gulley, an analyst at BGC Financial was quoted as holding out some hope about the situation. "If Uralkali and Belaruskali can settle their difference, then much, if not all of the damage from yesterday's [Tuesday's] breakup could be reversed", he suggested. Hints like that are helpful. Other analysts reminded investors that the two big potash players have broken up before. They noted that URALL's press releases keep hope alive for the Belarusians with text suggesting that URALL won't "exclude the possibility of cooperation on a beneficial basis in the future." One reality appears certain now. Potash producers must prepare for lower prices even though global production projects will be delayed and worldwide demand for potash will be rising in the year ahead. For the time being the cost of producing food in places like China and India will be going down with the price of food. This will likely be felt in disinflationary ways in Western countries as well. All the more reason for the Federal Reserve to keep stoking the flames of quantitative easing and bond buying for many quarters to come. Remember what happened to the stock market in June after the Fed's follow-on rhetoric days after the last policy meeting. As one Canadian bank advised clients who have invested in the fertilizer ingredient companies, "keep calm and carry on." This might be a timely, universal mantra for whatever financial turmoil lies ahead no matter which markets are impacted. At the time of publication the author had no position in any of the stocks mentioned. Follow @m8a2r1 This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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