Analysts Point to Seasonal Trade in Fertilizer Stocks

June 28, 2012 03:33 AM

Seasonally, now is the time of a rally in fertilizer equities, says an analysis in The Globe and Mail, Toronto. The piece notes stocks and exchange traded funds have a history of moving higher from the end of June to the end of December. Further, it quotes Thackray’s 2012 Investor’s Guide comments saying Potash Corp., the largest fertilizer producer in the world, has a period of seasonal strength from June 23 to Jan. 11. The trade has been profitable during 18 of the past 20 periods. Average return per period was 23.1 per cent. So, what are the prospects for the trade this year?

"An important influence on the seasonal trade is grain prices," the report states. "Higher grain prices generate more cash for grain farmers who, in turn, will purchase more fertilizer for the following crop year. Soybean, corn and wheat prices bottomed this year in the first week of June and already have gained 10 per cent. Crop conditions in the U.S. Midwest and Canadian prairies have been ideal. U.S. grain production this year could be the largest in history if weather conditions remain favorable. However, hot dry weather in the U.S. mid-west and Canadian prairies this past week could have a negative impact if extended."

The story also points to supply and demand factors outside of North America. It cites the soaring demand from China for fertilizer and its inventories are low. However, the record-breaking cold this winter in Russia and eastern Europe damaged the winter wheat crop which may crimp demand from that region.

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