The wild decline highlights the controversy surrounding long-term demand for

Tag : potash
A downgrade by Merrill Lynch & Co. to underperform triggeredthe chaotic selling spree, played into fear in the market about theglobal credit contagion hitting this until-now robust sector.
Potash Corp. fell 26 per cent, down $35.50 to $101 and down 59 percent from the height of $244.03 a share that it reached in June,when it was propelled by soaring prices of food and fertilizer.
In three-and-a-half months, the company has gone from the mostvaluable in Canada – worth $77-billion at its apex – tolosing its place in the top 10, standing at Thursday's close at No.11, worth $31-billion –with $10.8-billion of that torchedThursday.
The wild decline highlights the controversy surrounding long-termdemand for potash and other fertilizer products.
Investors are scrapping the belief that led them to bid the stockup earlier this year: that fertilizer prices will continue to riseas demand for food grows, even as the economy slows.
Now, prices for corn, wheat and soybeans are plummeting along withother commodities prices. “The near-term fertilizer demandoutlook has become more uncertain,” analyst Don Carson ofMerrill said in a report Thursday morning.
Mr. Carson cut his rating on Potash Corp. and other fertilizernames after U.S.-based rival Mosaic Co. admitted late Wednesday itsquarterly profit was far short of expectations. Mosaic stock fell41 per cent Thursday. It is down an astounding 75 per cent sinceits June peak. Shares of Calgary-based Agrium Inc. were down 23.03per cent.
But Potash Corp. says the long-term factors underpinning fertilizerdemand remain strong and have coalesced over several decades. Thefood-fertilizer story is sound, the company said. The reasons:Global grain reserves remain low, and the middle class in China andIndia keep boosting food demand. There is a shortage of potash, andnew supply isn't arriving soon.
“These corrections tend to happen in the extremes bothdirections,” said Bill Johnson, a Potash spokesman.
Potash Corp.'s swoon has come as investors have fallen out of lovewith commodities in general, said Wayne Brownlee, chief financialofficer of Potash Corp.
“One thing that happened, especially in our sector, was wegot a lot of momentum money into the stock, [people] who werebuying on momentum as opposed to perhaps buying on a thoroughunderstanding of the fundamentals. Basically, they're in and out,like the tide in the ocean,” Mr. Brownlee recently told TheGlobe and Mail.
Unlike crude oil and natural gas, both of which are far below theirpeaks earlier this year, the price of potash is in fact likely torise higher, based on recent spot trades. Potash is not traded likeoil and gas, which, along with other commodities such as wheat andgold, are traded daily on bourses that include the New YorkMercantile Exchange and the Chicago Board of Trade.
Notwithstanding the occasional spot sales, potash deals are mostlyconducted bilaterally between a buyer (such as China) and theseller (the producer) for contracts usually one year in length.
Among the factors driving potash stocks lower is the questionablelongevity of high potash prices. There is palpable worry amonginvestors about whether expensive potash is becoming unaffordablefor farmers, and there are more worries about crop prices fallingback.
In April, Potash Corp. and two other companies inked a deal withChina for potash this year at almost $600 (U.S.) a tonne, astunning price, given that it was more than triple the year-earlierfigure.
Then, prices went even higher, with spot sales around $1,000 thissummer. And potash on a spot basis has been leaving the Vancouverharbour at $800 a tonne.
Merrill Lynch's call to sell Thursday was based in part on potashprices not reaching heights some producers think they can get to.And there have been earlier warnings. Scotia Capital Inc. grew waryin the summer about fertilizer stocks, as critics said the stocks'valuations looked overextended, with commentators such asCitigroup's chief stocks strategist warning of a“dot-corn” bubble.
“We do accept the hype has gone away because peoplediscovered this and fell in love with it. It's like the first dateand second date but then it becomes routine,” said analystTerence Ortslan of TSO and Associates. “But nothing haschanged fundamentally, absolutely nothing has changed.”