Just a WARNING... POT likely to miss

A look at Ammonia Prices, Phosphorous Prices, the Strike, etc. and the fact that estimates have not come down, combined with the fact that the message boards are still full of people that believe POT can not go lower... I think POT will miss on Thursday and I will be looking to get short exposure to hedge if we have a rally tomorrow on the AAPL earnings and OPEC oil tightening threat. Also Cargill is released to buy MOS shares tomorrow and this may drive up the prices of MOS and perhaps the others as well.

POT is a bit risky here and I am looking to hedge with puts and/or short exposure. I have been very bullish on the fertilizers all year and I have to admit in the short to near term this has been the biggest investment mistake I have made. Period. I will probably look back at POT and MOS as one of those epic reminders of how to never make exceptions and always check assumptions at the door. The food commodities and potash/fertilizer trend is very much in an upward long term formation. However, the stocks went up to fast in the last years and it was a bubble. I believed that it was not a bubble because earnings supported the stock price but it turns out that the key drivers of earnings, ag commodity prices, were themselves in a bubble and that the earnings of the big 3 fertilizers are affected by the prices. It may be true the potash sees little demand destruction with drop in corn price to this level but the other businesses, which compriseof 2/3 of revenue combined, are clearly affected by the drop in prices.

I, like Jim Rogers and others (though I do not in any way claim to be he), are a bit early here. Commodities and grain commodities and potash and others will likely be in a long term bull trend for a long time but they went up too fast since 06 in comparison to demand. Demand comes from increase populations and increase demand for meat and decreases in arable land and other factors. All of this is true. However, it takes time for this to develop and the tripling of stock price was only sustainable short term as long as commodities prices stayed high.

If I am wrong I am more than willing to take a small hit on my hedges. However, I would be much more surprised if POT does not miss than if they do. The earnings may still be great but in this environment a miss may be treated brutally. It makes sense to seek some protection. Another option I am considering is shorting or buying puts in CF or TNH... but likely I will take shelter in POT itself. If they beat and the market turns that is fine. However, in this market the downturn must be assumed until proven otherwise.

I'm not sure why I treated these stocks as exceptions. I am generally very very careful and use very precise risk management but somehow I got carried away a bit here. Fortunately, the long-term fundamentals remain in tact. Still, I will look to get some short-term risk protection if we rally tomorrow.

Fertilizer Works Price Chart
Wiki POT breakdown
Also take a look at the Minnesota Blog at right

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