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Global commodity woes increased again on Tuesday after Russia's Uralkali broke up one of the world's largest potash partnerships and ended a marketing venture agreement with producers in Belarus.
This development changes how to invest in agriculture- as it has already sent investors fleeing from nutrient and fertilizer stocks this week.
In addition, the impact will likely crash global potash prices by 25% to 30%, as the collapse of an international duopoly will end a price-fixing agreement that benefited other producers of the key commodity by artificially inflating prices and keeping supply off the market.
Producer shares plummeted Tuesday -- some by nearly 30% -- with the breakup of the Belarus Potash Company, pushing many fertilizer companies back near their 52-week lows.
Following the news, BMO Capital Markets analyst Joel Jackson called this deal the "the end of the potash world as we know it."
But as potash costs likely drop toward $300 a ton, a consensus target among analysts, it's not all bad news for companies in need of this key ingredient in fertilizer. The breakup of the pricing cartel favors key agricultural producers, in addition to a reconfiguration of this key commodity market toward the end of the summer.
And as investors are trying to determine a bottom for these shares, the real opportunity may be elsewhere. Here's how to play this sudden correction in fertilizer stocks and the agricultural market right now.
This Cartel Breakup is Good For Consumers
Prior to this announcement, the Belarus Potash Company and North America's Cantopex (a joint venture of three U.S. producers) accounted for 70% of the global potash trade.
This duopoly effectively kept potash prices artificially high, a boon to producers of the nutrients. With the break-up of the cartel, more potash supply will likely hit the market and prices could slide significantly.
However, with more supply on the market and falling prices, that doesn't suggest that demand won't pick up. In fact, Uralkali is effectively counting on this demand given their unique power over competitors. The company maintains lower production costs of $62 per ton, according to company reports.
The announcement favors certain companies...
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.
Hello wondering if you can tell me which Bank of Montreal mutual funds have Potash Corp invested in? Thanks for your time