It's one thing when prices are lowered to spur demand. It's an entirely different situation when buyers "demand" lower prices and can hold out until they get it. Potash names such as POT, MOS and IPI saw a 20% haircut in market cap last month even though potash prices themselves had not "plummeted" as forecast. So which is the tail and which is the dog? It would appear the stocks definitely were the leading indicator. This from the WSJ may just be the tip of the iceberg lettuce.
"Indian potash buyers are (now) demanding discounts for the price of the key fertilizer ingredient as the Russian miner that shook up the sector's cartel system last month ramps up production, threatening to send prices tumbling.
The moves will further pressure shares of global potash miners, who have already lost up to 20% of their stock-market value since Uralkali said in late July that it was pulling out of one of two sales partnerships that together control two-thirds of the nearly $22 billion potash market. Now, the company says it is hiking production to full capacity.
Indian buyers, the second biggest source of potash demand after China, say they are asking for steep discounts on current contracts and will demand lower prices going forward."
Great for the buyers, bad for producers but is it merely transitory? The problem with this (deflationary) environment will now be determining just how long and "when" conditions are right where producers will be able to begin raising prices once again. One need only look at steel manufacturers ETF $SLX (click chart to enlarge) to see how they have fared in this area the last five years and we all know how the shippers have fared the last five years. Not a pretty picture when you cannot increase prices.
If you can withstand the pain, bottom fishing is an option in the ag arena however it certainly looks as though there's more pain to come. Personally I think the gaps in POT and friends will be filled at some point, and I plan to be waiting there, with long-dated (LEAPS) Puts.
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