PotashCorp (NYSE:POT)

CAPS Rating: 4 out of 5

An integrated fertilizer and related industrial and feed products company.


Player Avatar TMF1000 (99.71) Submitted: 11/15/2013 4:50:19 PM : Outperform Start Price: $55.30 POT Score: -105.29

I added POT to my CAP at a price of $57.60 during the Great Recession. I thought that was a good price. I bought shares around that time. But Potash mineral prices have fallen since the recession. During the recession, the price of Potash was over $800 a metric ton. It fell over the years to below $400.

But on July 30, 2013, Uralkali announced it was going to break out of the joint-venture from Belarus Potash Company to sell potash o the global market. Uralkali is one of the world's largest potash producers. Before the announcement, the cartel of Potash, Mosaic, Agrium, Belarus and Uralkali made up about 70% of global potash trade. They were able to keep prices higher. With this cartel breakdown the price of potash fell to a low of $358 per ton. This brought Potash stock price down to a low of $28.55. I purchased a trading position on $29.65 on 8/5/2013. I believe this range will be the low for the stock. They are paying a good dividend of $1.40 which gives them a dividend yield on my $29.65 purchase of 4.72%.

Potential growth drivers:

Increasing global populations will place pressure on food demands. Acreage devoted to farming is decreasing which means more food must be produced on less land which means increasing use of fertilizers. Crops take nutrients out of the soil and that must be replaced.

Corn represents a heavy fertilizer dependent crop. Ethanol production pressures demand for corn. If one believes that ethanol will play a larger part in global energy needs and if corn continues to provide much of the feedstock for ethanol production, then the demand for fertilizers will grow.

Many things affect these growth drivers. Bad weather will reduce the demand for fertilizers. Declining farm incomes will mean less money will be spent on fertilizers. A weak economy slows demand for nitrogen which is used in industrial processes as well as fertilizers.

Nitrogen based fertilizers come in the form of ammonia, urea, ammonium nitrate, and urea-ammonium nitrate (UAN). By using Nitrogen and natural gas to provide heat and hydrogen, ammonia is produced. Ammonia can then be combined with phosphoric acid to create di-ammonium phosphate (DAP) which is one of POT’s big sellers. And that brings us to one more obstacle. When natural gas prices go up it becomes more expensive to produce many fertilizers. And natural gas prices tend to go up when oil prices go up and the economy is booming. But today, natural gas is very cheaply priced that should help Potash too.

Just some notes to keep me thinking about them at this value point.

Member Avatar jtlz28 (< 20) Submitted: 11/15/2013 6:51:20 PM
Recs: 0

Something to keep in mind. Corn demands a lot of fertilizer. At $4-5 a lot of acres will be diverted to other crops that demand less . I am watching POT and UAN but a fearful of actual demand this year. However long term droughts WILL wreck the markets. It has to be bought for the long term and as a dividend item.

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