Potash (POT) Breaks Out
Flash Player 9 or higher is required to view the chart Click here to download Flash Player nowAs with gold 6 weeks ago, as with oil 2 days ago, now comes the liquidity chasing one of the few laggard areas…agriculture. Potash (POT) is breaking out in almost identical fashion to the other 2 commodities mentioned.
Last Thursday we saw a story that potash inventories declined for a 3rd consecutive month, although still at 142% above the 5 year average. However, by the time they get closer to average - these stocks most likely will have run a long way.
- Potash Corp of Saskatchewan (POT) said on Thursday North American potash inventories declined for a third consecutive month, but inventories at the manufacturer level continue to remain well above average.
- Potash inventories had risen steadily through the first-half of 2009, despite major production cuts, as farmers concerned by exorbitant pricing and hurt by the credit crunch had deferred fertilizerapplication.
- In July, India signed contracts to import the bulk of its annual potash requirements at $460 a tonne, well below last year’s contract price of more than $600 and the spot market price of $700 at the time.
- The new Indian contract has brought some international buyers back into the market, but many buyers and distributors still remain on the sidelines and are waiting for Chinese importers to finalize their annual contract, as they believe that potash prices could fall further.
- In a set of graphical data posted to its website, Potash Corp also indicated that potash spot market pricing was almost flat at just under $500 per tonne in September.
Technical chart of Potash Corporation (POT)
With a bevy of bad news in this sector for 6+ quarters, sellers may finally be exhausted. Or it simply could be the case of the underperformers as Ben Bernanke’s money looks for the next thing to inflate. Can’t tell anymore how much of these moves have to do with actual fundamentals and how much is so much paper currency chasing fixed amount of stock certificates. Let’s keep an eye on what price the Ch
Uranium’s Tough Outlook
Today’s Daily Angle comes from Wikinvest Wire member Hard Assets Investor. You can read the full article on the Hard Assets Investor Blog.
Back in May this year, HardAssetsInvestor.com featured a story about an under-the-radar bull market in uranium. After having fallen along with everything else in the credit meltdown, uranium was beginning to show some strong gains in the first quarter, rising to $51/lb from the high 30’s.
But then something strange happened: The bull market fell apart. Even as the global economy began to recover, boosting equity and commodity prices more or less across the board, the price of U3O8 plunged during the summer, falling around 15 percent.
In September, uranium spot prices fell an additional 7 percent, dragging down the price of the yellowcake powder to its lowest levels since March, at $42.75/lb.
While it is common for uranium prices to fall during the summer periods, such a big fall is worrying for producers of yellowcake, given that it was already 60 percent below its June 2007 peak before the summer.
For some companies, the scenario of continued lower prices has translated into production cuts and layoffs. For example, privately held Encino, Texas.-based Mesteña Uranium has had to terminate 90 employees, and reduce production by a quarter, to 650,000 lbs a year.
“The global nuclear renaissance has been put on hold,” Paul Goranson, Mesteña’s vice president and operations chief, told The Statesman recently. “We ramped up [on employees], but we’ve had to cut them back fast.”
Larger firms have also had their ups and downs. Despite a rise this year, shares of Cameco, the world’s second-biggest uranium miner, have been volatile. Analysts are concerned that the company will not hit annual production targets of 20.1 million lbs, after output in the second quarter dropped 27 percent, to 3.8 million lbs.
Situation: Abnormal
Toronto-based Paradigm Capital analyst David Davidson is one of those analysts. “To hit the target, things really have to go normal,” Davidson told Bloomberg in August. “And for Cameco, things haven’t often gone normal.”
To complicate matters further, it’s difficult to know for sure whether there is much value lying around in the uranium equity space right now, since the bulk of uranium producers have soared along with the rest of the stock market since March. For example, year-to-date Cameco has jumped around 70 percent, while the world’s largest uranium miner Rio Tinto has more than doubled.
In the nuclear energy ETF space, performances are similarly strong. Market Vectors Nuclear Energy (NYSE: NLR),iShares S&P Global Nuclear Energy Index (Nasdaq: NUCL) and PowerShares Global Nuclear Energy (NYSE: PKN)have all risen in line with broader indexes, by 18 to 25 percent.
While it’s true that there is somewhat of a commodity bull market getting under way, uranium prices remain relatively weak, not to mention unstable. The U.S. Department of Energy recently stated that it will transfer $200 million of excess government uranium to the United States Enrichment Corp. The move would effectively flood the market for uranium with excess supply and harm prices, similar to the way the introduction of former Soviet uranium did in the early 1990s.
“The loss of mining and mining-related jobs in Wyoming and elsewhere will be a direct outcome of the Department’s present course,” wrote Wyoming Gov. Dave Freudenthal in a letter to U.S. Energy Secretary Steven Chu petitioning for a veto of the transfer last Monday. “Given the already softening commercial market, I find it hard to envision that a determination of ‘no adverse material impact’ can be achieved relative to these transfers.”
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The Commodity Index Reborn
Today’s Daily Angle comes from Wikinvest Wire member Lara Crigger of Hard Assets Investor. You can read the full article on the Hard Assets Investor Blog.
As readers of HardAssetsInvestor.com know, the Commodity Futures Trading Commission spent all summer pushing for tighter regulation of commodity ETFs, which the agency blames (rightly or wrongly) for running up energy prices last year.
For the CFTC, it’s not a question of whether they should impose new regulations, but how much: Position limits, tighter regulation of swaps contracts and higher capital and margin requirements for derivatives are all possibilities currently on the table.
Exactly what shape the new rules will take will be decided later this fall, but already the debate has sent convulsions throughout the industry. Several futures-based exchange-traded products, like the U.S. Natural Gas Fund (NYSE Arca: UNG) and the iPath DJ-UBS Natural Gas ETN (NYSE Arca: GAZ), suspended the creation of new shares (although UNG has recently reopened). And at least one product, the PowerShares DB Crude Oil Double Long ETN (NYSE Arca: DXO), was entirely liquidated.
But what about the indexes themselves? After all, an ETF is really only as good as the index it tracks, and ifcommodities indexes don’t evolve, how then can the products?
Last week, several indexing companies announced their ideas for new commodities benchmarks, making it clear they didn’t plan to wait around for the CFTC to get its act in gear. But will any of their approaches work?
The CRB Index, Redefined
Last week, Thomson Reuters and Jefferies & Co. launched a revamped version of their famous CRB Index that focused not on commodity futures, but equities.
The original Reuters-Jefferies CRB Index, one of the most widely followed indices around, tracks 19 futures contractsfrom across the commodities spectrum, including crude oil, natural gas, industrial and precious metals, and softs.
In comparison, the new benchmark, the Thomson Reuters/Jefferies In-The-Ground CRB Global Commodity Equity Index, tracks 150 commodity producers and distributors worldwide. It includes equities of 50 energy companies, 35 agricultural producers, 35 industrial metals firms and 30 precious metals companies. The fund’s associated ETF, sponsored by ALPS Funds, launched last week under the ticker CRBQ. (Check out the CRBQ prospectus here.)
CRBQ definitely isn’t the first equity-based commodity fund: It has competition from existing broad-based ETFs like Van Eck’s Market Vectors RVE Hard Assets Producers ETF (NYSE Arca: HAP), and iShares‘ S&P North American Natural Resources Sector ETF (NYSE Arca: IGE).
But the new Reuters/Jefferies index does mark the first equity-based benchmark launched specifically as a reaction to the CFTC’s moves. It’s “an alternative for investors looking for exposure to commodities without exposure to the commodities futures market,” said Art Hogan, chief market strategist at Jefferies & Co, to the WSJ last week. On paper, it’s not a bad idea: A pick-and-shovel commodities index does avoid the volatility common to the derivatives market, and it places any ETFs tracking it outside the reach of the CFTC. Plus, in some cases, equities are the only way to score exposure to illiquid or difficult-to-access markets, like coal or steel.
But equities-based commodities ETFs have their own issues to contend with—namely, equity risk. As Larry Swedroe pointed out in last week’s interview, equity-based funds tend to correlate higher to equities than to commodities. Stock-based ETFs simply aren’t the “pure plays” on commodities that many investors are looking for.
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Six Ways to Profit From Jim Rogers’ Prediction that Sugar is Sweeter than Gold
Today’s Daily Angle comes from Bob Blandeburgo of Wikinvest Wire members MoneyMorning.com. You can read the full article on the Money Morning blog.
Global investing icon Jim Rogers is shifting his sights from gold to sugar.
And with good reason.
Sugar prices have zoomed more than 80% since the start of the year – eclipsing the 21-cent-per-pound mark for the first time in 28 years. But Rogers says there’s more room to run: Even after its scorching advance this year, sugar remains 70% below the record peak it hit in 1974.
Given that kind of profit potential, Rogers is much more bullish on sugar than he is on gold.
“Sugar is still very depressed on any kind of historic basis and I suspect it will go higher,” he said recently. “I wouldn’tsell sugar. I don’t know if it is going to go up in the next week or the next month, but I am certainly expecting sugar to go much higher during the course of the bull market over the next several years.”
Six Possible Sugar Plays
Assuming you agree with Rogers’ sentiment about the Sugar Markets, there are several ways that investors may capitalize on this bullish long-term outlook for sugar. They’re all worth a look.
- The “purest” sugar play – and also the shortest-term – is an investment in sugar futures, available on ICE in 112,000-pound contracts. The No. 11 contract trades global raw sugar, while the No. 16 contract trades the U.S. market, according to Commodity Online.
- Also, futures investors seeking an exchange-traded play on sugar can check out the futures-based iPath Dow Jones AIG Sugar Total Return Sub-Index ETN (SGG), an Exchange-Traded Note (ETN). As of the close yesterday, this ETN had posted a year-to-date return of 62.1%.
- Although a bit more broadly based, the Deutsche Bank AG (DB) managed PowerShares DB Agricultural ETF (DBA), an Exchange-Traded Fund (ETF), does include sugar as part (16%) of its holdings. Other holdings include soybeans (31%), wheat (28%) and corn (23%) – that last holding being a major near-term potential beneficiary if high sugar costs induce foodmakers to switch over to corn-based sweeteners. The fund is down about 3% so far this year.
- The ELEMENTS Rogers International Commodity Agriculture ETN (RJA), tracks 20 futures contracts worldwide. It’s down about 6% this year.
- In terms of pure agriculture-related investment plays, there’s the Van Eck Market Vectors Agribusiness ETF (MOO), a fund that really reflects the breadth of the agriculture sector, with holdings apportioned across such agricultural sub-sectors as chemicals, agri-product operations, equipment, livestock operations, and ethanol/bio-diesel. It’s up 39.2% so far this year.
- Although not a sugar play, per se, if you believe that sugar-cane-based ethanol – and other sources of alternative energy – will be an inevitable part of the global future, consider the following “green” ETF: thePowerShares WilderHill Clean Energy Fund (PBW), one of the better-quality funds that focus on “clean” technology as determined by the WilderHill Clean Energy Index. It’s up 17.2% this year.
Click here to read the full article on the Money Morning Blog
