Potash Corp. of Saskatchewan (NYSE:POT), the world’s largest fertilizer producer by market value, saw second quarter profits fall by 79% to $187.1 million or $0.62 per share. Stripping out a one-time gain of $115.3 million from previously impaired securities and the profit tallied $0.32 per share. The company also announced that 2009 earnings will be less than previously forecast as demand from farmers declined. This did not dismay investors as Potash ended the session up C$7.09 at C$104.59.

Brett Resources tabled an updated inferred resource of 155 million metric tons grading 1.04 gram gold per metric ton for its Hammond Reef deposit in Ontario. Brett ended the day up C$0.03 at C$0.89.

The appetite for resource related equities appears to be insatiable right now with the bigger producers receiving most of the interest. We shall see what Friday trading has in store.

Source: Resource Stock Roundup:Friday, July 24th, 2009

Even in day filled with less-than-stellar economic data and enough stocks trading in the red to pull the perma-bears out of hibernation, there is cause for optimism.

Today it comes from the companies that have anything to do with the world’s potash market.

Thanks to news that a key Russian producer is raising its prices due to increased potash demand, American firms like Intrepid Potash (NYSE:IPI), Potash Corp (NYSE:POT) and Mosaic (NYSE:MOS) are making strong gains.

The news is yet another strong indication of the profit potential currently held by the world’s commodities market. First we saw gold prices soar. Then oil. Then silver. And now potash prices.

Next up is your portfolio balance

As the world bounces out of this recession, demand will rise, inventories will fall and prices will naturally go up. The companies that directly see their margins rise as they pull materials from the ground will reward their shareholders with increased revenues and earnings.

Out of the three companies mentioned above, Potash Corp. is the largest. With 2008 revenues of $9.5 billion in 2008, it has the power to leverage strong gains in the potash market into strong profits for shareholders.

In an industry where size matters, Potash is king.

While today’s surge does not make this the greatest time to enter a position, a weak and volatile market over the next couple of weeks will create opportunities to enter a play.

Shares of the company have already doubled since their November lows of $47.54. But even at current prices of $97.75, there is an opportunity to rack up double-digit gains over the next few months.

Investors must be prepared to see trading resistance at the psychologically important level of $100 per share. As long as the bears are threatening to attack, prices will remain volatile anywhere close to that price.

The action will force buy-and-hold investors to pull out their hair. But short-term traders will take advantage of the action to make fast in-and-out moves.

The commodity markets are alive and well these days. They may look different than just a year or two ago, but if you are into making money, there are few better places to get the job done.

Source: Potash Is on the Move

Western Canadian Coal saw its fourth quarter revenue rise 48 percent to C$111,684,000 from the sale of 346,000 tonnes of coal. Earnings for the period ended March 31 came in at C$47.6 million or C$0.23 per share. Western ended the day up C$0.13 at C$2.12.

The Canada Day holiday falls mid-week so trading action heading into the end of June is expected to be on the light side. We will see what Monday’s session has in store.

Source: Resource Stock Roundup:Monday, June 29th, 2009

James McGregor wrote a book in 2005 on doing business in China called One Billion Customers. If the title sounds familiar, it may be because a man named Carl Crow wrote a book called 400 Million Customers, back in 1937. You see, the dream only gets bigger over time!

For the most the part, this dream remains a mere dream. But sometimes, someone, somewhere, figures it out. Carl Crow was someone who figured it out, and it made him a rich man.

Carl Crow led an adventurous life. Born in Highland, Missouri, in 1884, Crow started out as a newspaperman. Eyeing his fortune, he started China Press in Shanghai in 1911. But Crow eventually realized there was more money to be made in advertising. In 1918, he launched an advertising agency in Shanghai. As an adman, he helped his clients – mostly Westerners – sell their products to the Chinese.

His agency flourished. Crow’s billboards peppered China, from Shanghai all through the Yangtze Valley and as far north as Hubei. Chances are, if you flipped through a magazine in China between the World Wars, you saw Crow’s work in advertisements for cars, matches, cameras and many other goods.

He had a great run of 19 years. Then the war with Japan began in July 1937. Crow, who was outspoken in his criticism of the Japanese, fled the country. He could take none of his wealth with him. He lost everything — house, business, money. Back in the U.S., Crow penned his classic book, which helped him start over again. It’s still in print today. It’s widely viewed as a classic and is surely one of the most read books on China ever published.

Crow’s book, though, really shows how China was as much a money pit as a place where gold nuggets sprouted from the bushes. It remains that way today, ever tricky and hard to figure out. But for those who find a way, as Crow did, the rewards can be immense.

Let’s face it; a market of more than 1 billion noses is one you shouldn’t ignore. But it’s no small task trying to figure out which facial cream they might buy or what toothpaste they might favor.

However, there is another, more sure-footed way, to tap into that mass of humanity called China. Boiled down to its essence, the tactic is simply this: Buy what China needs, but can’t make enough of for itself.

In other words, as an investor, buy what the Chinese MUST buy. This next chart captures the idea. It shows China’s ability to produce a commodity against its demand for that commodity.

You want to be in the lower left-hand part of the chart. In short, the very best places to be are in potash, soybeans, iron ore and oil. In these commodities, China’s share of world production is low. For potash, China represents less than 5% of global production, as shown by the vertical axis. It is also not self-sufficient. As the horizontal axis shows, China’s production of potash is little more than 20% of its domestic demand.

Let me give you a little more color on potash. [Editor’s note: Last December, Chris urged the subscribers of Capital & Crisis to purchase the shares of Potash Corp. (NYSE: POT)]. I recently listened to a couple of presentations by Chinese potash companies. They all confirmed that there are few commercially developed potash reserves in China. The Chinese use 12-15 million tonnes of potash every year, but produce only 3 million tonnes.

Harry Yang is an executive director at Sinofert, of which Potash owns a stake. Yang pointed out that Chinese soil is potash deficient. “China uses enough nitrogen and phosphate because it is self-sufficient in nitrogen and phosphate,” Yang said. (Nitrogen and phosphate being the other two key nutrients.) “But China significantly underuses potash.”

Compared with farmers in the U.S. and Europe, application rates are half on a per acre basis. “Ten years ago, [Chinese] farmers had no idea about potash. Farmers are using more and more now.”

Liu Guocai, chairman of another Chinese potash company, Migao Corp., shared his views. He pointed out that potash inventories are low. He predicts that China’s demand for potash imports will bump up significantly later in 2009 in preparation for the 2010 planting season.

As for soybeans, China was once the world’s largest exporter. In 1995, it flipped to a net importer and has been the largest importer of soybeans in the world since 2000. Much of its supply is in the hands of companies such as Archer Daniels Midland, Bunge and Cargill.

More broadly, this speaks to China’s growing demand for food, and its growing dependence on foreign suppliers to keep its rice bowls full. This is why we see China in recent months making deals for food. It made a $500 million deal for poultry and pigs from the U.S. China attempted, but failed, to buy farmland in Mozambique and the Philippines. You may have also seen reports on Chinese deals in Africa. In Zambia, Chinese farmers already produce about a quarter of the eggs sold in Lusaka, the capital, for export to China.

As China maneuvers to secure its future food supply, one can easily see that the economic axis of the world is shifting from West to East. Understanding the dynamics of this shift will create some wonderful investment opportunities in the years ahead.

Someday, someone will write a book called One and a Half Billion Customers. Why not begin investing alongside the Chinese now, before the next half billion of these consumers arrive on the scene?

Source: Buy What the Chinese Are Buying

We had an expected and needed correction in ’07 into ’09 that was aggravated by the banking/credit/confidence crises. Without the collapse of the banking system the drop would have stopped in the mid to low 9000’s, maybe the high 8000’s and would have turned around after a reasonable period.

As soon as the market sensed that we were not falling into the banking abyss it ran right back to where it would have stopped without all the aggravating factors we had last fall; around 8700.

We are now where a real bull run should start, but we have just finished a 30% spurt in three months. We are out of psychological gas. The market is tired and afraid of having come too far too quickly. That is the cause of the drop in the volume in the markets and why many investors are betting on a pullback.

Whether we pull back now or later, or run up another 30% now or later, this market will still go over 10,000 and go to 15,000. In three to five years you will look back at this period and kick yourself in the butt for not doing the obvious.

We are down 6000 from our high on the DOW. If not for the problems last fall this would look like the biggest buying opportunity of our lifetimes.

This market period can still be the foundation for the biggest money grab in market history. Here’s how to make this work for you.

Go through the stocks in the S&P 500 and identify companies you are familiar with and whose products and history you feel comfortable with. It’s important you are comfortable with the company and how its stock behaves.

In other words, how did this stock do in the last run up from a correction? Or, how has this company behaved over the long term. Is it an obvious long term winner, three to five years, or a not sure? If it falls into the area of not sure, drop it from the list.

It would be nice if they were spread over four or five industries for diversification, but knowing the companies and being comfortable with them is more important right now. I’ll explain why in a minute.

Get your list together and study their price movement over the past six months. Eliminate, or delay buying those that have obviously run up too much. Look at how far they are from their 52 week high. Go with the biggest spread.

Start buying in ¼ positions those that look like they have some upside. In other words, if you normally buy $5000 positions, only buy $1250 positions.

What you’re doing is averaging into a market that will probably give you better prices in the future. Probably is the key word. This big pullback may not happen and you could be left at the station when the train pulls out.

Buy into the list when we have dips. Look at POT, Potash Corp. It dropped 20 points in one day recently and is a screaming buy. It was also a screaming buy at $115 two weeks ago. Using our plan you could go back in at $20 less per share now than a week ago and add another ¼ position.

Don’t worry if the turn around happens before you have all your cash in, cash is king. You’ll have other opportunities.

This market will serve up lots of bargains just like the POT buy in the next few months as it bounces and swerves it way out of the hole. You will make the real money planning on the market being crazy and not trying to guess if it will fall or rise. This approach allows you to plan on both.

The guts of this approach are the familiarity and confidence you have in your companies. They will give you the strength and discipline to ignore the really bad days that we definitely will have.

If you can watch your companies drop and know it doesn’t matter because you are certain it is temporary and they will make big money in the next few years, you picked the right stocks!

This is a new version of an old rule of investing. Be a Warren Buffet! Cheer when the market is terrible! Buy good companies that you know and buy into the dips in a down market.

It’s not perfect but it is the only way I know to make the market craziness work for you.

Source:  8500 Will Look Cheap

Rogers and Soros are snapping up farmland right now. These two old hands are betting that demand for food will soar, pushing up the price of arable land. This from MoneyNews.com:

Falling commodity prices aren’t bringing prices for farmland down with them. Even as the price of grain goes down, the cost of the land it’s grown on keeps going up, leading George Soros and other guru investors to bet big on agricultural land.

The fundamentals are easy to understand: Over the next 40 years the population of the world is projected to grow from 6 billion to 9 billion, hugely increasing the strain on arable farmland worldwide.

The spiking grain prices that caused food shortages and rioting in dozens of countries in spring of 2008 fell some 50 percent by December. Yet even after the correction, grain prices remain above their 20-year average, and food stocks around the world are still near 40-year lows.

“Land is scarce and will become scarcer as the world has to double food output to satisfy increased demand by 2050,” Joachim von Braun, director general at the International Food Policy Research Institute, told Fortune Magazine.

“With limited land and water resources, this will automatically lead to increased valuations of productive land. And it goes hand in hand with water. Water scarcity will probably increase even more than land.”

“I’m convinced that farmland is going to be one of the best investments of our time,” says commodities guru Jim Rogers.

Long-suffering readers will know that we’re bullish on the PowerShares DB Agriculture Fund (NYSE:DBA). But there are a number of other ways to invest in the ag sector.

These include agricultural chemical companies such as PotashCorp (NYSE: POT) , Mosaic (NYSE: MOS) , Agrium (NYSE: AGU) and Terra Industries (NYSE: TRA). Also worth considering is farm machinery outfit Deere (NYSE: DE) and farm products company Archer-Daniels-Midland (NYSE: ADM).

Potash Corporation of Saskatchewan (NYSE:POT) tabled first quarter earnings of $308.3 million or $1.02 per share down from the $566 million or $1.74 per share tallied in the first quarter of 2008. Prices for potash actually rose during the quarter but demand fell by 86 per cent. Potash ended the day down C$2.91 at C$97.49.

Suncor Energy (NYSE:SU) reported a first quarter loss of C$189 million or C$0.20 per share with output hitting 278,000 barrels per day during the first three months of the year. The second-largest oil sands producer, which is in the midst of a merger with Petro Canada (NYSE:PCZ), added C$0.86 on the day to close at C$30.33.

Fortress Minerals came out with an inferred resource of 5.975 million tonnes grading 2.43 grams gold per tonne at its Amy prospect on the Svetloye gold project in the Russian Far East. Fortress ended the day up C$0.075 at C$0.315.

Upstart gold miner Avion Resources produced 6,211 ounces of gold during the six weeks since beginning production in Mali. The cash cost per ounce of gold for the year is currently projected to be $505 per ounce. Avion ended the session up C$0.005 at C$0.30.

Shares of Chariot Resources added C$0.005 to close at C$0.295 after the company reported a positive feasibility study for the Mina Justa project located on its 70-per-cent-owned Marcona copper property in Peru. Using $2 per pound for copper, the pretax net present value comes in at $616.2 million at a discount rate of 8 per cent. The internal rate of return is 19.9 per cent and the cash operating cost over the life of the mine is $0.885 per pound of payable copper.

A stock to watch is beaten-down nickel player Belvedere Resources. Shares in the company were halted pending news at C$0.12.

The market is defying all the economic data and without verification that the earnings picture will improve, a selloff is in the cards at some point. We shall see what Friday trading has in store.

Source: Resource Stock Roundup: Friday, April 24th, 2009

Nickel started down earlier, but was off as sharply, closing at its intraday low of $4.9872/lb., down almost 16 cents. Zinc followed a similar path, shedding 2 cents, to $0.6247/lb. Aluminum was modestly lower, ending at $0.6408/lb., down less than a half-cent, while lead fell to its intraday low of $0.6478/lb., down 2 cents.

Copper led the other industrial metals deep into the red, as the unemployment numbers out yesterday had traders questioning the possibility of economic resurgence anytime soon, and many decided to cash out recent gains.

“Copper’s price correction was exacerbated by earlier losses in equity markets and data showing a further deterioration in the labor and housing sectors of the economy,” said Sterling Smith, of FuturesOne in Chicago.

Peter Boockvar, equity strategist at Miller Tabak & Co in New York, commented that, “The (housing) data shows a market that still remains somewhat in the doldrums. We’ve seen … purchase data [that] shows weakness outside of foreclosures.”

And from a technical viewpoint, there has been a “correction from the triple-top chart formation last week below $2.25 a lb.,” noted John Gross, publisher of the Copper Journal.

However, the stockpile data continue to be strongly supportive. Copper inventories monitored by the LME plunged again yesterday, falling by 9,625 metric tons to 440,475 tons.

RBC Capital Markets sees copper “supported near $2.00 a lb.,” citing those “steady inventory declines” along with “rising Chinese imports, expectations of higher growth prospects in China, high physical premiums in China, [and] a recent shift in London Metal Exchange (LME) spreads into backwardation.”

In company news, Xstrata (LON:XTA) said yesterday its copper-gold project in southern Philippines will require an initial outlay of $5.2 billion to develop, according to the results of its pre-feasibility study. The mine is estimated to contain 12.8 million tonnes of copper and 15.2 million ounces of gold.

And Potash Corp. (NYSE:POT) of Saskatchewan, the world’s largest fertilizer producer, said 2009 profit will be less than it previously expected after North American sales of the crop nutrient reached “a virtual halt.”

Source: Industrial Metals All Bleed

Organic farmers typically use manure from farm animals, or some other form of organic compost. Large, commercial operations typically use ground potash, a rock mined in Canada and elsewhere.

I’m not going to debate organic versus conventional farming here, but suffice it to say that all plants – regardless of how they are grown – need a good source of nitrogen and potassium.

Potash – otherwise known as potassium carbonate – is essential to commercial agriculture. It improves crop yield, taste, water retention, color, disease resistance and texture of food crops. Fruits, vegetables, rice, corn, wheat, soybeans and cotton all benefit from being grown in soil enriched with potash.

In the past few years, shareholders of the largest, profitable potash producers like Potash Corporation of Saskatchewan (NYSE:POT), The Mosaic Company (NYSE:MOS), and Agrium, Inc. (NYSE:AGU) were very happy campers. The stocks traded at PE multiples pushing 30 during the commodity boom of last year.

Not anymore: they’re all off more than 70% from 2008 highs. The financial distress that hit the rest of the economy in the fourth quarter of 2008 hit farmers too. When times are tough, farmers hunker down and cut costs. And one of their biggest expenses is fertilizer.

Most farmers typically have a large stockpile of potash on hand, and not buying on a regular basis causes them to use up what they have. You see, they can’t just stop fertilizing: many soils are overworked, or are marginal to begin with. If they scrimp or otherwise cut back on their applications of nutrients, yields suffer, and crop prices rise.

Once their penny-pinching became obvious to Wall Street, the already jittery markets didn’t need any prompting to hammer shares down to today’s low single digit PE’s, where they’ve remained since last October.

The problem facing the three companies mentioned above is that several big financially strapped potash producers in Russia have dropped prices 25%, putting pressure on others to do the same. This would have the effect of continuing to hold prices low.

It’s all being watched closely by China – one of the world’s biggest potash customers – who’s set to begin negotiations with the industry for its 2009 purchases. In response to the Russian action, Potash has cut production in order to keep prices from dropping through the floor.

The key here is to keep a watchful eye on crop prices. As they start to rise, farmers will jump on the bandwagon and fertilize more to increase their yields and make more money. And given that most are depleting current potash inventories, buying could soon resume in a big way, driving prices up once again.

Growing economies like the BRIC’s: Brazil, Russia, India and China are big potash users, and let’s face it: the world’s growing population will always need to eat.

Source: Agrium, Inc. (NYSE:AGU): Stock of the Day

The last time I recommended a fertilizer stock to the subscribers of my investment letter, Capital & Crisis, we tripled our money in 33 months. I’m hoping for a repeat this time around.

The basic idea is simple: The demand for food is rising, and hence so is the demand for fertilizer, which is essential to crop production. As farmers work with ever-decreasing amounts of good arable land, the need to boost crop yields is paramount. Fertilizers are a key part of doing just that.

The two draught horses pulling fertilizer demand are growing populations and an increase in demand for meat. The latter has an exponential effect on the grain markets. For example, it takes about 7 pounds of grain to produce 1 pound of beef. The ratios are 4:1 for pork and 2:1 for poultry.

And as I pointed out last month, the credit crisis makes it more difficult for farmers to get credit to buy equipment, seed and fertilizers. The market, in response, killed the stock prices of the fertilizer producers – more than discounting a potential soft spring season in 2009. But what it sets up is a real boom in fertilizer pricing on the back half of 2009 as grain prices recover, the debt markets ease and the unfolding food crisis takes hold once again. All the while, global inventories of grain still dwell near record lows.

That’s the lay of the land in a big-picture sense. And that’s why I urged the subscribers of Capital & Crisis to buy the shares of Potash Corp. (NYSE:POT) a few weeks back, when the stock was trading below $50 a share. Today, this blue chip fertilizer company sells for $80 a share, which means that it is not nearly as compelling a value. Nevertheless, even at the current quote, this is a stock that deserves at least an honorable mention.

Potash Corp. produces all three of main nutrients in the fertilizer world – nitrogen, phosphate and potash. This company has a particular abundance of potash, of which it is the largest producer in the world.

Of all the nutrients, potash is the most attractive from an investment point of view. It is the most supply constrained and it yields the richest profit margins. Good deposits of potash are rare. Only 12 countries produce it, but farmers the world over use potash to produce nearly everything.

There are no big new sources of supply coming online anytime soon. Potash also has the least amount of government involvement, thereby lowering political risk. Let’s take a look at this behemoth.

Potash Corp. of Saskatchewan has large and low-cost operations primarily in Canada. As the name suggests, potash is the mainstay of its business. It’s also on a growth spurt, with plans to take production from 10 million tons to 18 million tons over the next five years to meet growing demand. Incredibly, Potash Corp.’s growth alone will make up more than half of world’s new potash supply over the next five years.

Supply is tight, and Potash Corp. has potash in spades. Its reserves are enormous and its mines have long lives – 60-80 years. This is why some call Potash Corp. the “Saudi Arabia of potash.” The costs to build assets comparable to Potash’s are flat-out massive. We can construct a bottoms-up net asset value based on these costs (”replacement value”). Here is a summary of estimated costs to build new capacity, excluding infrastructure costs outside your plant’s gates (i.e., rail, roads, ports, etc.).

• Potash – $1.4 billion per million tons

• Nitrogen – $1 billion per million tons

• Phosphate – $1.5 billion per million tons.

These estimates don’t account for time, either. It takes five to seven years to bring on a new potash mine. It takes three years for nitrogen and three to four years for phosphate. According to CEO William Doyle, project costs could easily top $2 billion on a one million ton potash facility, after infrastructure costs. The costs for competitors form a daunting moat – as does the scarcity of quality potash.

But before we assemble Potash Corp’s net asset value using these estimates, we also have to account for its investment portfolio. Potash Corp. has a number of interesting investments in other companies that make the stock even cheaper than it first appears.

The company owns interests in SQM, a Chilean potash producer (32%); Arab Potash Co. (28%); ICL, an Israeli fertilizer company (10%); and Sinofert of China (20%).

In a September presentation, management disclosed that these investments were worth $23 per share.

SQM is publicly traded. That makes it easy to update – not so for the others. But let’s assume that after the brutal months of October and November, Potash Corp’s portfolio of fertilizer-related investments is worth only $10 per share.

Now we can assemble a basic NAV estimate:

I believe my NAV is conservative on a number of fronts. For example, potash capacity will rapidly grow to 18 million tons, and I haven’t accounted for that. I’ve also been draconian with the investment portfolio, which may be worth twice the price. In any event, I think $100 per share is a conservative rough estimate of NAV.

Excluding this kind of analysis, Potash Corp. also trades at historic lows on earnings and cash flow. It should generate at least $12 per share in earnings this year. At $80 per share, the stock trades for only 7 times earnings. That gives you a lot of room for error.

Potash Corp. throws off gobs of cash flow. For the first nine months of this year, Potash Corp. generated in excess of $2 billion in free cash flow – after capital spending! Most of this free cash went toward repurchasing stock. And the business is not capital-intensive. Management says the business needs only $260 million per year to sustain it. What Potash Corp. spends above this is for growth and is discretionary.

Besides, don’t discount Potash Corp.’s growth potential. In five years, with its expansion plans, the company could earn $25 billion in gross profit in a single year. The whole market cap is only $18 billion today. It could be a five-bagger over that time.

Your biggest risk is if fertilizer prices collapse, in particular the price for potash. One big indicator will be what Chinese buyers pay in spring 2009. But the share price already more than discounts the possibility of a dramatic fall in prices, which seems small given the broader trends I’ve outlined.

Right now, the shares seem quite cheap. “If you think about where our share price is today, we are priced for global depression, not just recession,” President Bill Doyle said in the latest conference call. “It’s as though…people around the world are going to eat bark off of trees. We don’t think that’s the case.”

I’m inclined to agree. Potash is exactly the kind of stock you should be buying now. There is a lot of short-term fear of the credit crisis. But the long-term story that underpins this investment is rock solid. And the company itself owns best-in-class assets.

Source: Buy Fertilizer