Agriculture

while precious metals flounder about with their lackluster performance, investors might want to consider other avenues for their investing needs, like the fertilizer market.

September generally tends to be a good month for precious metals, as investors shake off that summer sun and get back into the market. This year however, equities and commodities – particularly gold and silver – have had anything but good returns. So while precious metals flounder about with their lackluster performance, investors might want to consider other avenues for their investing needs, like the fertilizer market. 

As the Financial Post‘s Peter Koven notes, fertilizer stocks might be a contrarian play for some, particularly given the unimpressive performance of crop prices. However, these prolonged lower prices could signal the bottom, which in turn equals opportunity for investors looking to cash in on a turning tide.

“In the last several years, corn, wheat, and soy have gone through a cycle of drought and then very favorable weather conditions,” Tobias Welo, manager of the Fidelity® Select Materials Portfolio noted in a recent Forbes article. “We have gone from a peak of $8 a bushel for corn down to $3.50—which is close to the cost to produce the crop. This doesn’t mean we’re at the trough now, but I think we’re reaching a level where the invisible hand of supply and demand should start to come in and help solidify the market.”

Why is this important for fertilizer stocks, you ask?

The general consensus is that fertilizer prices tend to move in line with crop prices. That being said, it seems that some analysts, like those at RBC Capital Markets, are of the opinion that prices should be looking up due to the “strong nutrient uptake, solid farmer balance sheets and relatively tight supply-demand situation.”

“Although lower crop prices are a potential headwind for at least the next 6-12 months, we think this has been priced into fertilizer equities, while U.S. nitrogen applications should remain relatively robust and crop protection and seed spending should be resilient,” RBC said in a note.

Meanwhile, Fidelity sees a new set of dynamics in the sector, brought on by 2013′s departure of Russia potash producer Uralkali’s departure from the European potash cartel.  The new dynamics combined with a change in crop prices, lead the analysts to believe that there could be growth on the horizon for potash prices.

As Spend Matters notes, “[g]lobal fertilizer demand is certainly on the rise, driven by the population growth and the resulting increase in food demand.”

If this trend continues, as is expected, there will be an need for production of potash, phosphate and nitrogen. Looking ahead, RBC Capital Markets has given a “market weight” recommendation on bulk commodities, on the expectation that we will soon see a rebound.

 

MARKETS

Markets
TSX18861.36-217.28
TSXV617.26-9.08
DOW30775.43-253.88
S&P 5003785.38-33.45
NASD11028.74-149.16
ASX6700.20-63.40

COMMODITIES

Commodities
Gold1805.28-1.59
Silver20.22-0.03
Copper3.69-0.02
Palladium1933.50+11.50
Platinum898.50+1.50
Oil106.36+0.60
Heating Oil3.87+0.04
Natural Gas5.72+0.30

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