Quite amazing when one considers that if POZ could make a net profit of $25 per ton FOB on our Highland Plains P2O5 deposit, we should see a market cap of $2b which equates to an sp north of $20. Obviously not this market, but wait until there's a sign that we are out of the trough and a monster will be unleashed.
A Little Good News, Here And There, To Alleviate The Gloom
Sally White
Forecasts for better agricultural commodity prices in 2009 were made by two major international banks – Credit Suisse and JP Morgan. The bad news is that they think the markets could fall further first. “Agricultural commodity prices should outperform metals and oils in 2009, benefiting from a secure demand outlook and tight supplies, after the dust settles from the sell-off across commodities triggered by the global financial crisis”, said JP Morgan commodity analyst Lawrence Eagles. He added that “people still need to eat” and that these commodities were more responsive to population numbers than the gloomy macroeconomic outlook.
Cocoa, coffee and sugar are all close to a supply/demand balance, leaving the markets vulnerable to any supply shocks over the coming year, with minimal buffer stocks available. There was little good news in markets last week, however, one exception -for farmers at least- being fertiliser prices.
As agriculture markets weaken, urea prices (cost & freight), which touched US$850 a tonne in July-August, are now around US$260 a tonne, DAP prices have eased from over US$1,300 in October to US$480-500 a tonne, while ammonia imported from West Asia has dropped from US$900 in August to US$180, phosphoric acid (from Morocco) from US$2,300 in October to US$1,200, and rock phosphate (from Jordan) from US$450 in October to US$300 a tonne. The most spectacular fall has been sulphur (mainly from Saudi Arabia and Canada) - from US$850 in September to US$55-60 a tonne! An indication of the impact of past high prices came of figures showing Brazilian fertilizer deliveries were down 35.5 per cent in October compared with the same month in 2007, according to the National Association of Fertilizer Distributors.
Among the fertiliser industry casualties, Mosaic saw its shares fall by 16 per cent before they rallied, after it gave a profit warning. The world’s largest producer of phosphates says sales volumes dropped 38 per cent in the quarter ended November. 30 because of “soft market conditions.” So it withdrew the guidance that it had given to brokers’ analysts for next year’s profits. At the moment it is unsure how much money it will make as it is cutting production as farmers order less. But on Friday the shares were up 4.9 per cent at US$27.57.
Russian fertiliser maker EuroChem spent nearly US$400 million raising its stake in German potash and salt supplier K+S, and bringing questions on its plans the rival group. EuroChem, controlled by Russian investor Andrei Melnichenko, has lifted its stake in K+S to 15 per cent from 10 per cent. On Friday profit-taking took K+S shares down EUR2.17 at EUR32.25.
Palm oil prices were leading down the plantation stocks on Friday, with the price around US$436/tonne. On Thursday, Goldman Sachs lowered its CPO price assumptions for 2009 and 2010 by 41 per cent and 50 per cent while cutting the target prices for plantation companies under its coverage by up to 52 per cent. It said while CPO prices at current levels were close to a bottom but the timing of a re-rating for the sector remains uncertain. In Malaysia Kulim, IOI Corp and Asiatic all fell, but United Plantations added 10 sen to RM10.10. In London the palm sector rose, headed by New Britain, which was up 4.5 per cent at 172.5p.
Led by Brazil’s biennial tree cycle, world coffee production in 2008-09 is at a record 138.4 million bags (60 kilograms), the US Department of Agriculture said on Friday. Ending stocks are forecast to total 39.6 million bags versus the previous year's 34.5 million as a result of Brazil's record production. Since 2003-04, following Brazil, ending inventories had been trending downward. Last week on Friday on LIFFE Robusta for delivery in January slumped to US$1,558 a tonne from US$1,980 a week earlier. On the NYBOT, Arabica for March fell to 102.45 US cents a pound from 115.80 US cents.
Christmas shopping was behind the fall in cocoa. Farmers in Nigeria's south-western cocoa belt have begun selling in earnest the beans they hoarded last month to make money for the upcoming holiday season. On the New York Board of Trade, the March cocoa contract decreased to US$2,146 a tonne from US$2,280. March dropped to £1,488 a tonne from £1,515 in the week earlier in London on LIFFE.
Depressed by both the recession and falling energy prices, sugar weakened to under £300 a tonne in London, with the March contract on LIFFE sliding to £294.50 pounds from £328.40 the previous week. On the NYBOT, the price of unrefined sugar for March dropped to US 10.55 cents per pound from 11.88 cents.
As global car and tire sales fall, Thailand, the world’s biggest rubber producer, is asking fellow producers Indonesia and Malaysia to agree to buy rubber from its farmers at guaranteed prices. Rubber has plunged to a five-year low, down 70 per cent from its June 28-year high. On Friday the Malaysian Rubber Board's benchmark SMR20 slumped to 116.10 US cents per kilo from 140.35 US cents per kilo a week earlier.
Rice was another rare gainer, as the poor US crop and a rise in cash orders squeezed the market. US rough rice futures on the Chicago Board of Trade rallied the 50-cent limit and reached a two-week high on Friday. January rice ended 44 cents higher at US $14.13 per hundredweight and March closed 23-1/2 cents up.
US food corporates, however, were a gloomy scene. The sector is less resilient to depression than it had hoped. Squeezed between volatile food costs and falling meat prices, US chicken producer Pilgrim’s Pride announced it was filing for voluntary bankruptcy protection, tumbling its shares 46 percent to US$0.62. Pilgrim's troubles also weighed on competitors Tyson Foods and Sanderson Farms, sending their share prices down over ten per cent.
In Europe the picture looks better. Major European international food companies should continue to “prove resilient”, despite the challenge from rising costs, Credit Suisse believes. Despite tough conditions "..the entire industry managed to raise product prices as of the fourth quarter of 2007 and continued doing so in 2008,” says analyst Olivier P. Müller. Most companies had refocused their businesses and were reducing net debt. Credit Suisse favours Lindt & Sprüngli, Nestlé and Unilever, which now have a low degree of financial leverage. But it still sees some potential for further debt reduction at Cadbury, Danone and Danisco.
Dry shipping markets continued dire, with the Baltic Dry Index down on the week by 11.9 per cent to 672, against last year’s average of 7,100. German shipyards are to get government financial backing.
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