Why fertilizer is a better buy than gold

Potash might not glitter, but it may be worth some consideration for the commodities portion of your portfolio.

By The Fiscal Times Dec 19, 2011 11:18AM
PotashBy Suzanne McGee, The Fiscal Times

After rocketing $500 an ounce in the first eight months of the year, gold prices have tumbled as investors take an increasingly bearish view of commodities in general.

For most commodities, that skepticism is warranted. But gold's recent nosedive and predictions that it will fall to $1,400 an ounce in coming weeks, well below the September record of $1,923.70, has some market watchers raising their eyebrows. After all, isn't gold a different kind of commodity -- a sort of haven, an asset that serves as a refuge from uncertain economic times and volatile markets, just the kind that we have lived through in the second half of 2011?

Yes. But the gold market has changed a great deal in recent decades. It has never really been dominated by end users as copper, soybeans and crude oil ultimately are. Instead, with every year that has passed, the role of speculators in the gold market has grown.

Investors no longer buy gold bars and stash them in bank vaults; they snap up gold ETFs or other derivatives tied to the price of gold, and they can buy or sell whenever they want. Long-term investors, who want to maintain a strategic allocation to gold in their portfolios, have given way to speculators eager to jump on or off the bandwagon as momentum dictates.

There is still more than $100 billion in gold held in easy-to-sell exchange traded vehicles, by some estimates. Investors who don’t want to lose more, or who want to hang on to what is left of any profits, may well add to the selling pressure. The changes to the ways in which gold can be purchased and the much broader investor base have dramatically changed its nature as a haven.

So are there any "safe" commodities left to invest in? If you listen to economists, probably not. Forecasts of a slowdown in global growth next year are common, and that will wreak havoc on demand for things like copper and crude oil. It's not surprising that their prices have come under siege. But there is one intriguing option: potash.

True, potash  never really glitters like gold; rather, it lurks in the shadows. It's not traded on the futures markets. Investors who are interested have to invest indirectly, via stocks of producers like Potash Corp. of Saskatchewan (POT) and The Mosaic Company (MOS). But the absence of a futures contract also means potash prices haven’t been the focus of speculation.

Not that potash prices don’t face risks. Shelley Goldberg, a Roubini Global Economics analyst who last week produced a report analyzing the potash market, concluded that there are in fact many risks involved. Cash-strapped farmers may cut back on fertilizer purchases for a year or two without harming productivity, creating some short-term downside risk to both the commodity price and the stock prices. Still, the long-term fundamentals remain relatively upbeat. Demand for agricultural productivity isn’t going to abate, particularly in emerging markets like China, India and Brazil.

Global demand was expected to climb 11% this year, and even if the rate of growth in demand from China ebbs, Indian needs will likely more than compensate as the country tries to become self-sufficient in foodstuffs, especially grains. Goldberg points out that India’s fertilizer budget is bigger than its military budget.

With that in mind, when designing a portfolio for 2012, you might want to think about including shares of Potash Corp. of Saskatchewan, whose stock ended last week at $39.50. Largely bullish analysts expect the shares to hit $60.

If you’re still in the mood to gamble a bit, there’s upstart Western Potash, the development-stage player that now trades for C$1 a share on the Toronto Stock Exchange. Analysts rate it a "speculative buy" and say its share price could double -- that is, if it isn’t acquired by one of the behemoth players in the industry or Chinese or Indian interests.

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20Comments
Dec 19, 2011 2:31PM
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Holy Moly!!!!!  you mean gold won't endlessly increaase in value?

 

 

shocker.

Dec 19, 2011 1:53PM
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Gold is a speculative bubble. Ironically, US dollar is scarcer than gold. For decades people borrowed and promised to pay back with interest in the future. The future is here. Pay back time. But entire money supply is not enough to pay the debt. Google for "DEFLATIONARY CRASH" to understand why US dollar is the place to be at times of deflation. Fertilizer may not survive the coming crash either, but agriculture in general is likely to do better than gold. Demand for necessities such as food will be there, where as demand for commodities like oil, gold, silver will be down and will push prices down. On the other hand, farmland prices will not go higher in a deflationary crash either. I would play safe and stay in cash until i see lower prices to buy.

Dec 19, 2011 2:45PM
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You might check out water futures as well.
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so fertilizer is more valuable than gold, eh?

time to go a-lookin for golden cow patties

Dec 19, 2011 4:33PM
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Wow..fertilizer better than gold.  I wonder if the defecation of the Democratic party know that.  They've been spreading it around for years.  They could be millionaires.  Oh, wait...they already shafted the public....sorry.....Sick
Dec 19, 2011 2:52PM
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Dave Ramsey has been saying this all along--gold is not a good investiment.
Dec 19, 2011 5:08PM
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LOL... yes indeed what the democrats and Obama are spreading smells like $#it but I am quite sure nothing good can grow from it.
Dec 19, 2011 5:23PM
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Amonium Nitrate is part of the ingredients for ANFO which is an explosive commonly used in underground mining operations and made famous as home made explosive used by anti-government groups.  Caustic potash is a common ingredient in field improvised explosives compounds taught by the US Military.

 

Amonium Nitrate Fuel Oil explosive is popular because is has a low degree of post ignition fumes and also can be molded, pumped, platicised to work in wet environments that would degrade TNT or dynamites.

Dec 19, 2011 3:31PM
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There is always a deflationary period before the real inflation and then hyper inflation arrive.  Look at what is happening in Iran as we speak where 40 metric tons of gold were sold to the general public over a matter of days.  You will want to be in physical once this short lived deflationary period ends.
Dec 19, 2011 3:00PM
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Anything is no good after a long wild run.
Dec 19, 2011 6:45PM
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As a farmer I will give you some spot fertilizer prices.  10 34 0 $725 a ton. 32 0 0 $425 a ton.  Cattle manure bought, hauled and applied 6 miles away $7 a ton.  All very expensive and much higher than 5 years ago.
Dec 19, 2011 5:23PM
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Right, notice how the people who write the article are tied into financial markets, probably some broker prodded them to write it.  And by this time, its too late anyway.

 

Everyone already knows if its a play or if its BS same deal.

Dec 19, 2011 6:38PM
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Fertilizer is a crappy investment...
Dec 19, 2011 5:10PM
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Bet050, think you meant ammonium nitrate, not potash a salt basically, potassium chloride , MOP
Dec 19, 2011 5:11PM
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all this time I thought the fertilizer they used to make explosives was nitroger....silly me....
Dec 19, 2011 5:24PM
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Sure bet as world population increases so do the consumption of Fertilizers!!!!! best buy a Russian company that is the largest in the world...but is Russian???...
Dec 19, 2011 3:02PM
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Son of Revolution,   Good one. Smile   There's always real estate for a solid investment!
Dec 19, 2011 7:20PM
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Let's go back to the" HONEY WAGONS",like they had after WW2 in Europe.It where  very good fertilizer and got rid of the poops..at the same time.

If you confused,ask a GI....statient in Europe 50 years ago.

 

 

Dec 19, 2011 4:23PM
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This by-product can give life and it can take it away. i.e. when mixed with soil in the ground it will grow food and provide sustenance. it can also kill hundreds when blended with other ingredients. Oklahoma bombing for instance. Everything is linked and one can not do well without the other, sorta the web of life.

 

Dec 19, 2011 3:02PM
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NEOM maybe the next gold, it's the bar code scanner in stores. Will change the way businesses do business.
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