On October 26th, CMP announced a $35 increase per short ton of Sulfate of Potash. This increase is important for several reasons. The first, and most important, is the ability to increase prices in an environment that has been deflationary. Look for the company to continually increase pricing in the long term. The second reason, is how price increases affect the PE ratio of the stock. Like with gold or copper miners, price increases are generally better at the producer level. In a time of low growth and short money supply, it generally causes great problems to push prices on to the consumer, so companies selling retail will have to absorb the cost although producers continue to make more money. It also signals an increase in demand as it is generally tough to increase pricing as demand wanes. This type of fertilizer is used on crops with higher margins than corn or soybeans and will also allow for further increases even if prices cant be increased in supermarkets or with respect to the fruit grown.
CMP has had a nice run over the past year as the stock has increased from $64 per share to $81. As stocks pull back over the next couple of weeks watch support around $79, although long term this stock can be bought anytime in the near future.
Thursday, November 11, 2010
Saturday, July 17, 2010
Agricultural stocks are starting to move
The last month has been quite good for many of the Ag stocks. Most of which have reversed a sideways or down technical chart. Earnings for CMP will be on the 28th of this month, and it is probably ok to wait for earnings as buying now may be a bit of a stretch. Look to buy this one around October after the possible downward move in stocks in August/September. Historically this seems to be the pattern. Analysts currently have this stock growing 8% this year and 18.5% next year. The current PE of 15 and forward PE of 12 make this one fairly cheap especially if there is a start to a bottoming of the world economy. Also, this company has been looked at as a possilbe takeover target, or even possibly a spin off to separate their salt and fertilizer businesses. Long term this one is a buy even with the 50% growth over the past year.
Wednesday, September 23, 2009
TRADITIONAL REVERSAL, BULLISH PRICE TARGET
Compass Minerals could benefit quite a bit with the possibility of inflation not seen in some time. If inflation is lighter than expected, it is possible that we could see numbers close to that of the Reagan years. That said, and an expanding middle class in countries like China and India should increase demand for food. CMP has two businesses, the first is salt and the second and most importantly Potash. It is the higher grade of potash as it is used for exotic crops such as citris fruits. Since it is applied to crops with higher margins there is much more room to raise prices. It also would not be surprising if the company was purchased by someone like Potash Corp as it is much more cost effective to buy then to set up new areas. It could be very profitable for the buyer as the potash could be acquired and the salt business could be sold or placed as an IPO.
The current chart is bullish. The traditional three box reversal, is highlighted by a triple top breakout on September 2nd. New price objective is $69 from today's close of $59.90.
The current chart is bullish. The traditional three box reversal, is highlighted by a triple top breakout on September 2nd. New price objective is $69 from today's close of $59.90.
Saturday, August 15, 2009
Muriate of Potash and Salt
Compass looks to be a great buy on growth and or a possible acquisition looking for growth. This one is the best in the space
Friday, February 13, 2009
COMPASS MINERALS TRENDING DOWNWARD
Compass Minerals had a great quarter and is still a great company to invest in long term. The increased price with respect to their sulfer of potash was great but deliveries were down significantly as farmers are waiting to apply fertilizer as they are unsure of their economic environment. It is also possible they are finding it difficult to get credit to purchase the fertilizer. One very interesting aspect to this company and others in the realm of potash is that they are not caving in with respect to price. The way the fertilizer business is built, is to not built keep much inventory with respect to fertilizer and seeds. One reason is that fertilizer and seeds are usually only guaranteed for one year. As an example Monsanto will only honor the yield on their seed as insurance for one year to make sure people do not stock up on their product. This causes retail to only have a small amount of capacity and order as much as is needed. Also, most are ordered in advance to lock in price so they don't have to store much as it is delivered directly to the farm. Since this is the case there is generally small areas to store fertilizer that would be purchased without signing an order. Currently fertilizer is not selling but potash is still increasing in price. The idea is that if it is not sold in the US, India and China will pick up the slack. I would watch this as CMP, SQM, POT, MOS and IPI all look good. Especially look at IPI, as there has been some interest in this name and it is up on days that even the rest of the industry is down.
Saturday, February 7, 2009
Different types of Potash
As an investor, it is very important to understand the basics of what you are investing in. Not only the business, but why the particular company has a niche that creates a good outlook going forward. It is very easy to understand some businesses, like Apple for example. The investor can go to Best Buy and try out the latest IMac, IPod or Safari software. This doesn't always hold true, as some businesses are not as tangible or at least readily visible. This is what makes the business of fertilizer difficult. Your average consumer will go out and buy fertilizer at Wal-Mart, not thinking about what is in it. Even farmers will check their chart of what type to order for the upcoming planting season without looking as to why the makeup is important. Not all farmers, but most didn't have a college education just twenty years ago, and now they are sending their kids to get degrees, so they know how to increase yield by using the right herbicides and insecticides. Even the correct type of genetic seed can make for a much better plant.
Up until recently, fertilizer was one of the most boring commodities. It was a joke, as the stocks would pay their dividends but have very little up or downside. Now that emerging economies with huge populations are trying to find a middle class, they are eating more meat. For every pound of meat, it takes ten pounds of grain to get it to your dinner table. China knows that one of their most pressing economic details is to become self-sufficient with respect to feeding their people. Most countries are running out of land, so the only way to increase crops is by the way of yield. Although there are many ways to do this, the most ignored way seems to be by using fertilizer. Of the three different nutrients nitrogen and phosphorous are easy to ramp up production, while potassium is much more difficult.
Potassium is mined in the form of Potash. Potash is a term coined by early settlers who evaporated water through wood ashes to make soap. Potash generally refers to potassium chloride or muriate of potash. This was produced by ancient oceans pulling back and leaving minerals on the soil. Over time this was covered by top soil and sediment, and is now mined as ore. These deposits are KCl and NaCl. Looking at Compass Minerals, it is reasonable that salt and potassium are both parts of their business. Another reason these parts of Mosaic were spun off a few years back. There are several ways the K can be separated to produce all sorts of potassium based fertilizer.
Although plants can be harvested without potassium fertilizer, the addition of potassium is very important for root growth, photosynthesis, slow crop disease, and activates enzyme systems. Potash comes in many forms. As stated earlier the most common is potassium chloride. This version is approximately one half potassium and one half chloride. The bonus of potassium chloride or muriate of potash, is its high level of water solubility. This is the chloride ion is negatively charged which allows it to pass through the soil to the roots much easier. It also has a high content of potassium to meet the needs of the plants nutrition requirements. It can be referred to as red or white in color but this has no effect on the fertilizer, just a regional difference where other compounds are present such as iron. Chloride can also be beneficial in reducing plant diseases and can be considered a plus in areas that have soil where there are low levels of chloride. It can also accumulate in areas of poor drainage, so sometimes excesses can be found with excessive application. When companies such as Potash, Mosaic, Agrium and Intrepid Potash are discussing the price per ton of potash they are speaking of this. Potassium Chloride is used with respect to plants such as corn, soybeans and wheat. Since it is less expensive and does not require any different resources to create, this is the standard of the industry and 90% of all potash sales per ton. Approximately 70 million tons are sold per year.
Another composition of potash is potassium sulfate. This is 43% potassium which creates a need for increased tonnage with respect to application. Sometimes this is used on land that is sulfur deficient, as it contains 18%, but the main reason is for chloride sensitive crops. Prices generally are higher for sulfate of potash, but this compound is approximately 10% of the ore mined or 7 million tons per year. In some cases companies will buy muriate of potash and convert it into sulfate of potash with the use sulfuric acid. The combination will produce a potash with much less chloride for chloride sensitive crop, but is much less soluble in water when replaced with the sulfur oxide molecule.
Potassium-magnesium sulfate or langbeinite can also be produced. Intrepid potash produces this as their mines have a higher concentration of magnesium. The specialty fertilizer can be utilized with chloride sensitive crops while providing all three nutrients in their specialty fertilizer. The compilation of this is approximately 18% potassium, 11% magnesium and 22% sulfur. When checking pricing with respect to this we see it is much lower, but the much lower concentration of potassium makes it much more equivalent.
Potassium nitrate is produced by SQM. This along with their KCl production. Potassium nitrate is found in Chile and was once produced by the combination of potassium salts and nitric acid. Now SQM is producing this organically with their salar brines. The natural production not only gives it the organic tag, but is much less to produce increasing margins. It contains 37% potassium and 13% nitrogen.
Lastly, there is potassium hydroxide. This is very expensive to produce and rarely used. It is sometimes used in liquid specialty plant nutrition. With all of this keep in mind that potash fertilizer is potassium oxide. The amount of potassium seems to be key with respect to application.
With respect to potash pricing, Potash stated during their third quarter conference call that North American sales for potash averaged $563 per ton (189% higher than last year), and $601 per ton offshore (262% increase). These numbers are KCl or muriate of potash. You can still get exposure to chloride free potash by investing in Potash as they have investments in SQM, Arab Potash Company, Isreal Chemicals, and Sinofert Holdings Limited. This January Mosaic reported earnings and stated that MOP sold for an average of $529 per ton (204% increase year over year). They placed their offshore and North American sales together, so I am unsure what the difference was. Agrium's last quarterly report stated that they averaged $655 per ton for MOP, which is a much smaller portion of their business, but was more than triple the $184 per ton last year. When looking at the last earnings quarter for IPI, we see that their MOP sales price increased to $687 per ton as opposed to last year's price of $213 per ton. Langbeinite sales price increased to $312 per ton, from $151 per ton last year. The important aspect to remember is that Langbeinite is potassium, magnesium and sulfur. They increased mining of this specialty fertilizer for chlorine sensitive crops while decreasing their muriate of potash mined. They stated the increase was due to in increase in production at a particular mine but, all of the 25% increase in production was sold.
Although IPI does have some specialty plant nutrition, the majority of what they sell has chloride. When looking at CMP and their sulfate of potash sales, we see they have a much higher sales price. Last quarter they sold their SOP for $752 per ton as opposed to the year prior at $528 per ton. The most important aspect of pricing was there guidence as they stated pricing would approach $1000 per ton. Quarter 4 to date, the price CMP is currently selling SOP for is $946 per ton. 75% of these sales are to the United States while 25% is exported. They also announced a lease agreement to increase production, although many companies with MOP are cutting production to try and maintain pricing at its current levels. When looking at SQM's last quarterly earnings statement we see that SOP is a small amount of their actual earnings. Revenue is $60.1 million vs. $281 million for potassium nitrate and other specialty fertilizers marketed by Yara Int. When looking at their earnings for the first nine months of last year, I didn't see a price for their fertilizers, only revenues and margins. Their annual report didnt have average selling price, so I have an email to their company to clear up the lack of info.
In summary, although some information is lacking, that non-chloride based potassium fertilizers seem to be increasing in price faster that MOP. POT, MOS, and AGU should still see price increases as there have been no decrease in the spot price and off-shore payments have been increasing. So even if prices stay the same, the $500-$700 price being realized should slowly grow into the $800 spot price as current contracts lapse and new ones are signed. Current production cuts should keep prices strong. As for non-chloride based potash production, it seems to be increasing and the price is not only growing into the spot price, but also the spot price seems to also be increasing.
The best reason for this is the types of crops that non-chloride potash is used on. Since it is used on specialty crops, a higher price can be garnered. Looking at estimates by CMP, we see that commodity crop have less margins with respect to earnings. Commodity crops are corn, soybeans, wheat, etc. etc. Specialty crops are tobacco, fruits, nuts, etc. etc. Using Agriculture and Applied Economics statistics, specialty crops are only 3.7% of total harvested acreage in the world. That means for every 1000 acres of crops 37 acres are specialty and 963 acres are commodity crops. The 37 acres produce 37% of all revenue brought in with respect to all crops. In other terms, 963 acres of every thousand receive $63 of every $100 generated. Using Agriculture and Applied Economics Association and GSL estimates we see that specialty crops average $2750-$5550 of revenue per acre. Commodity crops average between $285-$585 of revenue per acre. Almonds, a specialty crop, is effected only slightly by an increase in SOP pricing. If SOP was to increase $100 per short ton, the price of a pound of almonds would only increas $.007. The price of grapes would only increase $2 per ton, from $550 to $552 if the same price increase in fertilizer were to take place. That is how little the price of fertilizer affects there margins as opposed to that of commodity crops.
Now that we somewhat understand the basic chemical structure of potash, how do we trade it? Potassium nitrate although used on different crops is still a specialty fertilizer and will demand a higher price. Currently, SQM has 49% of the world's production. 16% is produced by other fertilizer companies in Chile and finally the last 35% is produced by the Middle East. SOP is produced by quite a few different companies. In China, 2.8 million tons are produced. Most of this is KCl conversion, but China does have some lake brine extraction. KCl conversion is expensive, as sulfuric acid has increased in price significantly. In Germany, 1.4 million tons are produced and this is through KCl and Keiserite conversion. Belgium produces 1.2 million tons through KCl conversion. There are another 1.05 million tons produced in various other countries and almost all of them convert KCl. CMP has capacity for 450000 tons of production and all is done through lake brine extraction. SQM has capacity of 300000 tons and all is lake brine distraction.
The current issues with potash fertilizer and its derivatives look to point to SQM and CMP as the best possibilities with IPI being the third. If you want to play it safe POT has large investments in SQM, CMP, along with several smaller potash companies that do not currently have US ADR's. Although fundamentals for MOP, things are much better for SOP and potassium nitrate.
Up until recently, fertilizer was one of the most boring commodities. It was a joke, as the stocks would pay their dividends but have very little up or downside. Now that emerging economies with huge populations are trying to find a middle class, they are eating more meat. For every pound of meat, it takes ten pounds of grain to get it to your dinner table. China knows that one of their most pressing economic details is to become self-sufficient with respect to feeding their people. Most countries are running out of land, so the only way to increase crops is by the way of yield. Although there are many ways to do this, the most ignored way seems to be by using fertilizer. Of the three different nutrients nitrogen and phosphorous are easy to ramp up production, while potassium is much more difficult.
Potassium is mined in the form of Potash. Potash is a term coined by early settlers who evaporated water through wood ashes to make soap. Potash generally refers to potassium chloride or muriate of potash. This was produced by ancient oceans pulling back and leaving minerals on the soil. Over time this was covered by top soil and sediment, and is now mined as ore. These deposits are KCl and NaCl. Looking at Compass Minerals, it is reasonable that salt and potassium are both parts of their business. Another reason these parts of Mosaic were spun off a few years back. There are several ways the K can be separated to produce all sorts of potassium based fertilizer.
Although plants can be harvested without potassium fertilizer, the addition of potassium is very important for root growth, photosynthesis, slow crop disease, and activates enzyme systems. Potash comes in many forms. As stated earlier the most common is potassium chloride. This version is approximately one half potassium and one half chloride. The bonus of potassium chloride or muriate of potash, is its high level of water solubility. This is the chloride ion is negatively charged which allows it to pass through the soil to the roots much easier. It also has a high content of potassium to meet the needs of the plants nutrition requirements. It can be referred to as red or white in color but this has no effect on the fertilizer, just a regional difference where other compounds are present such as iron. Chloride can also be beneficial in reducing plant diseases and can be considered a plus in areas that have soil where there are low levels of chloride. It can also accumulate in areas of poor drainage, so sometimes excesses can be found with excessive application. When companies such as Potash, Mosaic, Agrium and Intrepid Potash are discussing the price per ton of potash they are speaking of this. Potassium Chloride is used with respect to plants such as corn, soybeans and wheat. Since it is less expensive and does not require any different resources to create, this is the standard of the industry and 90% of all potash sales per ton. Approximately 70 million tons are sold per year.
Another composition of potash is potassium sulfate. This is 43% potassium which creates a need for increased tonnage with respect to application. Sometimes this is used on land that is sulfur deficient, as it contains 18%, but the main reason is for chloride sensitive crops. Prices generally are higher for sulfate of potash, but this compound is approximately 10% of the ore mined or 7 million tons per year. In some cases companies will buy muriate of potash and convert it into sulfate of potash with the use sulfuric acid. The combination will produce a potash with much less chloride for chloride sensitive crop, but is much less soluble in water when replaced with the sulfur oxide molecule.
Potassium-magnesium sulfate or langbeinite can also be produced. Intrepid potash produces this as their mines have a higher concentration of magnesium. The specialty fertilizer can be utilized with chloride sensitive crops while providing all three nutrients in their specialty fertilizer. The compilation of this is approximately 18% potassium, 11% magnesium and 22% sulfur. When checking pricing with respect to this we see it is much lower, but the much lower concentration of potassium makes it much more equivalent.
Potassium nitrate is produced by SQM. This along with their KCl production. Potassium nitrate is found in Chile and was once produced by the combination of potassium salts and nitric acid. Now SQM is producing this organically with their salar brines. The natural production not only gives it the organic tag, but is much less to produce increasing margins. It contains 37% potassium and 13% nitrogen.
Lastly, there is potassium hydroxide. This is very expensive to produce and rarely used. It is sometimes used in liquid specialty plant nutrition. With all of this keep in mind that potash fertilizer is potassium oxide. The amount of potassium seems to be key with respect to application.
With respect to potash pricing, Potash stated during their third quarter conference call that North American sales for potash averaged $563 per ton (189% higher than last year), and $601 per ton offshore (262% increase). These numbers are KCl or muriate of potash. You can still get exposure to chloride free potash by investing in Potash as they have investments in SQM, Arab Potash Company, Isreal Chemicals, and Sinofert Holdings Limited. This January Mosaic reported earnings and stated that MOP sold for an average of $529 per ton (204% increase year over year). They placed their offshore and North American sales together, so I am unsure what the difference was. Agrium's last quarterly report stated that they averaged $655 per ton for MOP, which is a much smaller portion of their business, but was more than triple the $184 per ton last year. When looking at the last earnings quarter for IPI, we see that their MOP sales price increased to $687 per ton as opposed to last year's price of $213 per ton. Langbeinite sales price increased to $312 per ton, from $151 per ton last year. The important aspect to remember is that Langbeinite is potassium, magnesium and sulfur. They increased mining of this specialty fertilizer for chlorine sensitive crops while decreasing their muriate of potash mined. They stated the increase was due to in increase in production at a particular mine but, all of the 25% increase in production was sold.
Although IPI does have some specialty plant nutrition, the majority of what they sell has chloride. When looking at CMP and their sulfate of potash sales, we see they have a much higher sales price. Last quarter they sold their SOP for $752 per ton as opposed to the year prior at $528 per ton. The most important aspect of pricing was there guidence as they stated pricing would approach $1000 per ton. Quarter 4 to date, the price CMP is currently selling SOP for is $946 per ton. 75% of these sales are to the United States while 25% is exported. They also announced a lease agreement to increase production, although many companies with MOP are cutting production to try and maintain pricing at its current levels. When looking at SQM's last quarterly earnings statement we see that SOP is a small amount of their actual earnings. Revenue is $60.1 million vs. $281 million for potassium nitrate and other specialty fertilizers marketed by Yara Int. When looking at their earnings for the first nine months of last year, I didn't see a price for their fertilizers, only revenues and margins. Their annual report didnt have average selling price, so I have an email to their company to clear up the lack of info.
In summary, although some information is lacking, that non-chloride based potassium fertilizers seem to be increasing in price faster that MOP. POT, MOS, and AGU should still see price increases as there have been no decrease in the spot price and off-shore payments have been increasing. So even if prices stay the same, the $500-$700 price being realized should slowly grow into the $800 spot price as current contracts lapse and new ones are signed. Current production cuts should keep prices strong. As for non-chloride based potash production, it seems to be increasing and the price is not only growing into the spot price, but also the spot price seems to also be increasing.
The best reason for this is the types of crops that non-chloride potash is used on. Since it is used on specialty crops, a higher price can be garnered. Looking at estimates by CMP, we see that commodity crop have less margins with respect to earnings. Commodity crops are corn, soybeans, wheat, etc. etc. Specialty crops are tobacco, fruits, nuts, etc. etc. Using Agriculture and Applied Economics statistics, specialty crops are only 3.7% of total harvested acreage in the world. That means for every 1000 acres of crops 37 acres are specialty and 963 acres are commodity crops. The 37 acres produce 37% of all revenue brought in with respect to all crops. In other terms, 963 acres of every thousand receive $63 of every $100 generated. Using Agriculture and Applied Economics Association and GSL estimates we see that specialty crops average $2750-$5550 of revenue per acre. Commodity crops average between $285-$585 of revenue per acre. Almonds, a specialty crop, is effected only slightly by an increase in SOP pricing. If SOP was to increase $100 per short ton, the price of a pound of almonds would only increas $.007. The price of grapes would only increase $2 per ton, from $550 to $552 if the same price increase in fertilizer were to take place. That is how little the price of fertilizer affects there margins as opposed to that of commodity crops.
Now that we somewhat understand the basic chemical structure of potash, how do we trade it? Potassium nitrate although used on different crops is still a specialty fertilizer and will demand a higher price. Currently, SQM has 49% of the world's production. 16% is produced by other fertilizer companies in Chile and finally the last 35% is produced by the Middle East. SOP is produced by quite a few different companies. In China, 2.8 million tons are produced. Most of this is KCl conversion, but China does have some lake brine extraction. KCl conversion is expensive, as sulfuric acid has increased in price significantly. In Germany, 1.4 million tons are produced and this is through KCl and Keiserite conversion. Belgium produces 1.2 million tons through KCl conversion. There are another 1.05 million tons produced in various other countries and almost all of them convert KCl. CMP has capacity for 450000 tons of production and all is done through lake brine extraction. SQM has capacity of 300000 tons and all is lake brine distraction.
The current issues with potash fertilizer and its derivatives look to point to SQM and CMP as the best possibilities with IPI being the third. If you want to play it safe POT has large investments in SQM, CMP, along with several smaller potash companies that do not currently have US ADR's. Although fundamentals for MOP, things are much better for SOP and potassium nitrate.
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