TSX plunges as potash shares hit

Tag : potash

Shares in Toronto slid sharply Thursday, as a downgrade for heavilyweighted potash producers and concern about a U.S. bailout packagetook the index down hard.
The S&P/TSX was down 5.6 per cent, or 657.37 points, to 11,057.14 at 1:30(EDT). In the United States, the Dow Jones industrial average fell 2.51 per cent, or 272.08 points, to 10,558.99. The broader S&P 500 fell 2.93 per cent, or 34.05 points, to 1,127.01.
Merrill Lynch downgraded the fertilizer sector to underperformfrom buy, suggesting prices were coming down from record highs,and farmers may be less likely to plant fertilizer-dependent cornnext year as prices drop, and instead opt for hardier soybeans.
The near-term fertilizer demand outlook has become more uncertainas the recent decline in corn prices has reduced the marginadvantage over less fertilizer-intensive soybeans, analyst DonCarson wrote in a note to clients.
Potash Corp. lost 20 per cent in morning trade, while Agrium wasoff 15 per cent.
Sentiment for the sector also took a hit after Mosaic Corp. missedexpectations in its first-quarter earnings report Wednesday. Thecompany earned $2.65 (U.S.) a share, but analysts had expected$2.94. Profit increased to $1.1-billion from $305-million a yearago.
This is obviously an extremely volatile market, said MichaelDecter, chief executive officer of Lawrence Decter InvestmentCounsel. It's a vast overreaction to what Mosaic reported  isthere any reason to take $30 off Potash Corp.? I don't think so.
He said the rash of selling is likely motivated as much by generaleconomic fears as any concern about the world's supply of potash,and suggested that short-sellers have moved on to commodities nowthat they have been forbidden by the SEC to short financial shares.
You can see why they would move on to short other stocks as badnews keeps piling in, he said. You have the uncertainty over thebailout and the economy, and when you stack it all up together itmakes for a very unpleasant day. But if you were to buy Potashtoday, my guess is two years from now you'd look like a genius.
The mining subindex  which counts Potash and Agrium among itsmembers  is weighted at 15 per cent on the S&P/TSX, thethird-highest of its 10 sectors. The subindex was down 11 per centThursday, and is down 33 per cent in the last three months.
Also weighing on markets is the status of a bailout package for theU.S. financial sector. The Senate approved a bailout package thatcontained more concessions for Main Street Wednesday, after a$700-billion plan was rejected by the House of Representatives onMonday. The new deal would see a temporary increase in bank depositinsurance, as well as tax breaks for the middle class. It will nowmove to the House, which is expected to vote Friday.
Meanwhile, the number of U.S. workers filing new unemploymentbenefits claims rose to its highest level in seven years, thegovernment said Thursday, blaming hurricanes Ike and Gustav fordisplacing workers. Initial jobless claims were at 497,000 in theweek ended Sept. 27. Economists had expected the number to be475,000.
We had expected a smaller weather effect in this week's report butthe Labour Department says the hurricanes added about 45,000 toclaims, commented Ian Shepherdson, chief U.S. economist at HighFrequency Economics. The underlying trend, therefore, seems to beabout 450,000, which is still disconcertingly high. The peak trendin claims in the recession of 2001, excluding the period after9/11, was just 400,000 or so.
Demand for U.S. factory goods dropped at the fastest rate in twoyears in August, causing further concerns about the health of theeconomy. Factory orders fell 4 per cent, with economists havingpredicted a 3 per cent drop.