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Inventory analysis can often lead to a better understanding of supply and demand dynamics. When inventory rises, it often points to excess supply. On the other hand, falling inventory levels suggest supply shortage. The latter is positive for producers of phosphate fertilizers since it often increases prices or quantities sold, which means higher revenues. Higher revenue is often the key driver of earnings in financial statements.
The Fertilizer Institute, a fertilizer association, publishes monthly inventory for products held in the United States. On January 31st of 2013, the amount of phosphate fertilizers in inventory rose 21.5 thousand short tons to 698.5 thousand short tons. Although the increase is slightly negative for producers in the United States, current inventory is sitting near four year highs of 670 thousand metric tons. Whenever inventory levels have risen to that level, it is often followed by declines. There are two possible reasons for this pattern:
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