Commodities Countdown

Agrium (AGU) And Potash (POT) Discuss Merging


Two of Canada's largest companies in the Agriculture related space confirmed they were in merger discussions on Tuesday. While Agrium (AGU, AGU.TO) is widely considered an acquisitive company, this has not been the history for Potash Corp. (POT, POT.TO).

A few things need to be reviewed here. First of all, Potash prices have been struggling since the collapse of the potash marketing consortium, Canpotex. As this Potash pricing problem doesn't appear to be resolving itself anytime soon, Potash is struggling. It appears that Agrium wants to continue to expand its vertical integration model for supplying the farmer. With a retail arm firmly in place, Agrium does a nice business supplying the farmer with crop inputs and then helps them with the sale of the grain during and after the harvest through their network of grain terminals. 

Let's look at the charts to see what might be happening technically. Starting with Potash Corp, the stock is roughly  half of its preceding market value before the breakup of Canpotex. Again, Canpotex was the marketing consortium controlling price on Potash. Before Tuesday's announcement, Potash's US listing was trading at $16 USD which is  about 25% of the 2008 high of $65. That can motivate a management team to look for strategic alternatives.

A look at the Canadian Potash Corp (POT.TO) listing shows a similar trend that includes the $CADUSD currency changes. I stretched out the chart to 10 years to show the all-time high. The 3:1 represents a stock split. We can see the SCTR for the last year has been one of the lowest, longest periods for the stock.

Agrium (AGU) is a different beast. They have a vast business with many moving parts. Some hedge fund managers  think breaking it into smaller businesses is beneficial for short term gain. We have seen that play out in multiple oil companies that broke upstream away from downstream and the result crushed the shareholders who disliked the instability of the stock through the business cycle.

Agrium has been a compiler of different parts of the business into a vertical model. Agrium has a vertical integration model that is unique but Janus Capital and others have tried to blow it up. I won't try to suggest I know what's best. The bottom line is the compression in some of the crops has hurt Agrium. The move today closed Agrium near the neckline of a one-year head/shoulders pattern.

The Canadian listing of the Agrium stock (AGU.TO) is of huge interest to Canadian investors. There is so much to like about where this closed. A solid kick above the down sloping trend line. It marks fresh 2016 highs. Rarely are both companies up on news like this. Both Agrium and Potash exploded higher. This one has an interesting treat that shows the momentum just turning positive. If this was a new uptrend for the stock with positive momentum kicking in, that would be extremely bullish!

I'll try and review the fertilizer stocks on this week's Commodities Countdown 2016-09-01 Webinar. This is one of the webinars that we offer that is open to non-members. Click on the link to register.

Next month, Chartcon 2016 is coming to you via live stream broadcast. Rather than have customers spend all the money to travel to the event, we have arranged for all the technicians to gather in one location and broadcast from there, saving you thousands of dollars. It should be a crazy couple of days with a tight synopsis of the markets from an award winning Technical Analyst crew. You can register for this event for under $200 and have access to the recordings. Chartcon 2016.

Lastly, I will be presenting in person at Golden Gate University in September if you are in the area.

September 20th, 2016 @ 4 PM
Golden Gate University. Rm 3214
536 Mission Street
San Francisco, 94104
Cost: Registration is $10 for MTA members and $20 for non-members

You can register through the TSAA-SF website. Click here.

Not all our picks are this good, but we will update the Gold and Gold Miners synopsis. I wrote an article on the Gold miners on August 10th, suggesting this trade was losing momentum. Here is a link to the article that was posted on the red arrow. Ever Been Hit By A Gold Brick - 2016-08-10? The article posted after the market close and ended up marking the highest close before the decline. So what is in store for the shiny metal next? We'll try to cover that off in the next few webinars and explain the position of the charts. No promises on getting the low to the day!

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Good trading,
Greg Schnell, CMT, MFTA

Greg Schnell
About the author: , CMT, is a Senior Technical Analyst at specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More
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