Potash Throws the Hook -- or Does It?

October 7, 2013 11:14 AM

Potash pricing has been on a downward tear since late June. A little simple math suggests the downside may have been exhausted. At the very least, K declines have outrun December corn futures and the expectation is for limited downside potential for potash in the weeks ahead.ZCZ k NH3

Given the current state of corn futures, potash will struggle to find strength without December corn to buttress the increases. And now that Uralkali is backing away from the dramatic declines they had preached, market pressure and political tension are easing, leaving corn to, once again, hold sway over potash pricing.

The chart at the right compares one acre of expected new-crop corn revenue to the price of one ton of anhydrous ammonia for reference, and an adjusted potash price. The adjustment here allows us to examine the relationship of potash pricing and December corn futures on level footing.

The constant stream of rumors forced me to adjust my 'squelch' and it is true that Uralkali says they believe the worst is over. This chart agrees that the downside has been overdone, and suggests more upside risk than downside potential. If you have not yet booked fall potash, get on the stick. We are beginning to look toward spring, and have advised hedging 20% of spring potash needs at current pricing. But if you fear a corn pop or a corrective bounce in potash, put your mind at ease and spread the risk by booking an additional 20-30% today -- this is a suggestion, not formal advice.

We say, "look for the hook" and potash gave us the hook this week. If today's $1.09 higher price week-over is that hook, then now is the time to jump in. I do not want to fall for a head fake on this so I am willing to wait a week and see what comes of the chart hook. But there it is... the great potash depression of 2013 may have just sputtered out of gas.

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