Potash overview: Expanding on indicators driving stocks like POT

Potash overview: Expanding on indicators driving stocks like POT (Part 1 of 13)

Could Mosaic and Potash Corp.’s 2014 outperformance continue?

Underperofmrance

Potash stocks such as Potash Corp. (POT), Mosaic Co. (MOS), Intrepid Potash Inc. (IPI), and Sociedad Quimica y Minera de Chile ADR (SQM) largely underperformed the S&P 500 in 2013, which also pulled the performance of the Market Vectors Agribusiness ETF (MOO) lower. In part, this was caused by weak fertilizer demand, falling crop prices, and poor emerging markets growth. As the industry’s operating rate fell, competition intensified—perhaps leading to the breakup of the partnership between Belaruskali and Uralkali.

Potash Industry's Relative PerformanceEnlarge Graph

Outperforming the S&P 500

Since the start of the year, though, these stocks have been outperforming the S&P 500. However, you could say this outperformance has been relatively low. Plus, whether this outperformance continues is questionable. Could Potash Corp.’s (POT) operating capacity cut at the end of 2013 have marked the bottom of potash stocks? Maybe.

In this series, we’ve outlined some recent developments that have had and are likely to have important implications for the industry’s fundamentals going forward. While food consumption growth and inflation are often considered a reason to invest in fertilizer companies, there’s much more to what affects fertilizer companies.

Building on Market Realist’s first potash business overview

In our potash business overview (see A key overview of potash industry opportunities), we outlined some characteristics about the potash industry and some ways investors can analyze the industry. In this series, we’ll build on that analysis and introduce several indicators that have had an impact on the fertilizer and crop industries in the past and that will likely continue to have a large influence. We’ll also draw on recent developments associated with those indicators to provide a picture of ongoing events.

Note that this series doesn’t cover how macro fundamentals, such as the economic slowdown in China, affect the industry.

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