Mosaic Company (MOS : NYSE : US$53.20),
Potash Corp. (POT : NYSE : US$44.40),
Positive guidance update.
Mosaic provided a guidance update for their Q4F12. In light of the rapid acceleration in demand, the company believes Q4F12 volumes for both potash and phosphate will be in the upper end of the guidance range.
Those previously released guidance ranges are potash (1.7-2.2 mt) and phosphate (2.3-2.7 mt). Over the past several months, Canaccord Agrhas recommended a relative nitrogen over potash trade due to comfort with nitrogen volumes and margins (given low North American gas costs).
Going forward, given investors’ relative indifference since November on the potash names (expectations are not elevated), last month’s China potash contract settlement – in line with the view of putting a bottom into pricing and moving volumes again), and expectation thatpotash volumes will increase with the U.S., Brazil and Southeast Asian markets returning as buyers over the next few months,
Investors should have Mosaic and Potash Corp. on the long side. We have seen an increase in activity inChina, a good application season in the U.S., an increase in activity in the SE Asian spot markets, where inventories are being worked through and new product is being ordered, and in Brazil, where demand has been very strong. So much so, that BPC believes the possibility exists for pricing to increase into the Brazilian market within the coming week.
The long Mosaic and Potash Corp. trade should begin to show momentum through the remainder of the second quarter
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