When I bought Potash of Saskatchewan (POT) for Jubak’s Picks on April 4 http://jubakpicks.com/2012/04/04/buy-potash-of-saskatchewan-pot-in-my-jubaks-picks-portfolio/ , I said I’d buy it now even though I didn’t like most cyclical stocks in the current market environment. My preference for Potash of Saskatchewan isn’t just over other cyclical stocks, however. I also prefer the stock to that of other fertilizer producers. The fundamentals for potash producers such as Potash of Saskatchewan look substantially better than those for producers of nitrogen and phosphate fertilizers.

Which is why I’m going to take the opportunity of an up market today to trim my fertilizer exposure today by selling shares of Yara International (YARIY) out of my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ .

All parts of the fertilizer industry are adding capacity, which has a tendency to depress prices when demand isn’t growing like corn in Iowa in July. But the potash market is effectively controlled by the two global cartels, Canpotex of Canada and Belarussian Potash, that together account for 70% of global supply. In most years the two cartels work to match production with demand so that the potash industry avoids huge price swings and long-term gluts.

The nitrogen and phosphate markets don’t have anything like that discipline. Phosphate, which is mined as potash is, is looking at big increases in capacity from mines in the Middle East: Saudi Arabia, Iraq, Jordan, and Israel. Big additions to supply scheduled to come on line in 2012 and 2013 as countries in the region, especially Saudi Arabia, invest to build up their domestic exporting industries. In nitrogen fertilizers, where the main constraining factor is the price of natural gas, the huge global glut of gas that has led to 11 new plants, adding up to 10 million metric tons of new capacity, schedule to go into production by mid-2013. The nitrogen market is likely to be seriously oversupplied by 2013/2014, Credit Suisse concluded in an April 3 report.

Under these circumstances I’d much prefer to own potash producers such as Agrium (AGU), Mosaic (MOS), and Potash than companies over weighted to phosphate and nitrogen fertilizers.

That’s apparently a preference shared byYara International (YARIY in New York and YAR.NO in Oslo), the world’s biggest producer of nitrate (a nitrogen fertilizer) fertilizers. Read more

In my April 2 post http://jubakpicks.com/2012/04/03/cyclical-stocks-had-a-great-first-quarter-but-a-bad-march-are-they-trying-to-tell-us-something/ on the great first quarter turned in by cyclical stocks—and the lousy March–I said that in general I don’t see much to tempt me into putting money into cyclical stocks before first quarter earnings season (which starts on April 10) and before we get some resolution of big macroeconomic questions on growth from Europe and China.

In general.

But I also said that I’d make an exception for fertilizer producer Potash of Saskatchewan (POT) and I promised to explain why.

Part of the reason is the March 30 report on corn plantings from the U.S. Department of Agriculture that projected a 4% increase in acreage planted this year from the 2011 level. A second report on corn stock inventory showed inventory on March 1, 2012 of just 6.01 billion bushels, down 8% from the March 1, 2011 inventory levels. The corn stocks level of 6.01 billion bushels was below the consensus of 6.15 billion bushels.

The two reports add up to more planting—which means more seed and fertilizer and pesticides purchased by farmers—and to higher prices as stocks fall before the actual harvest.

But part of the reason is specific to Potash. Read more

Update Potash of Saskatchewan (POT)

Potash of Saskatchewan (POT) has been telling investors for more than a month that it believes that demand is picking up and that prices for potash fertilizer would start to climb in the first quarter of 2010.

I guess the company really meant it.

Yesterday, March 11, after the close of trading Potash raised earnings guidance for the first quarter to a range of $1.30 to $1.50 a share. That is a huge leap from prior guidance of 70 cents to $1 a share set only on January 28. The Wall Street consensus had been for earnings of 94 cents a share. The company said it would make any revisions to guidance for the full year when it reported first quarter earnings on April 29.

The increase in guidance follows hard on the heels of news from Canpotex, the export arm of Canada’s fertilizer producers, that it was increasing export prices for potash. The price increase, effective immediately on all new sales, took prices to $415 a ton for standard and $430 a ton for granular grade.

In the January 28 guidance that accompanied fourth quarter earnings, the company had projected potash prices of just $365 a ton for 2010. At the time I called first quarter 2010 guidance laughably low. “The numbers don’t make a whole lot of sense except as a reaction by the company to seeing its guidance get smashed to the downside in quarter after quarter,” I wrote.

The jump to $415 to $430 a ton in March, however, is a bigger increase than I’d expected this early in the year. Read more