Nutrien - Fertilizer Plays Into Growing Season, But a Coinflip

업데이트됨

2022's droughts and the Ukraine War put a lot of the world's food supply into question. Food commodity futures had a pretty bullish year. Since we're in mid-February and Western Hemisphere growing season is right upon us, fertilizer stocks are really worth paying attention to.

Food scarcity is an even bigger issue with the Wuhan Pneumonia pandemic smashing Xi Jinping and his Chinese Communist Party over in Mainland China. The Party claims less than a hundred thousand people have died from COVID since this all began.

But the Party is obviously lying about that, since China had 1.4 billion people and was the epicenter of the virus. America is on the other side of the ocean and lost 1.1+ million people.

My point is that if China has really lost, say, 40 or 50 or 100 million people to the pandemic, the Party will need to import crops because there won't be all that many farmers around anymore to do the work of feeding the regime.

This should be a bullish situation for food commodities and fertilizer.

Nutrien is one of the market leaders, but this is a really difficult setup, a lot like flipping a coin, and here's why.

1. A monthly microgap at $64 that the algorithm spent a lot of effort keeping lows away from
2. Already a 40%+ retrace, but new lows haven't been set.
3. Daily bars show a perfect continuation of the downtrend line
4. Weekly bars show a sweep of the downtrend line
5. Earnings is Feb. 15

So, here's what I think at the moment. It's something of a gamble, but I think you can generate Alpha with puts on Nutrien before earnings. I say this, but realize that "generating Alpha" doesn't buy rice at the grocery store. It's like Sklansky Bucks in poker. Cool, you got +EV, but the donk took all your money. At least you can post a bad beat, I guess.

In this case I think the play is not as unrealistic.

Another fertilizer giant, CF Holdings, has earnings the same day: Feb. 15 postmarket, and started doing the bearish "orderblocking" thing two sessions ago

These patterns before earnings are generally (emphasis on generally) harbingers of a big gap down coming. The logic being that sell orders are being filled in anticipation of what smart money's big data analysis has already very accurately determined is about to happen

Monday you get an FOMC member jawboning and Tuesday we get the dreaded CPI printout. It's a lot of volatility confluencing together in one big coagulate and if you guess right you win a cookie and if you guess wrong Wall Street guys will pay stripers with your money at 11:00 PM happy hour.

In Nutrien's Q3 '22 financials the company told investors that they expected demand to be hot going into _fall_, and not spring, "Weather has been favorable in North America and we anticipate that the rapid pace of harvest will support strong fall ammonia demand and normal application rates of potash, phosphate and crop protection products."

They also said, "We have lowered our global potash shipment forecast to between 60 and 62 million tonnes in 2022, largely due to the impact of higher-than-expected inventory and cautious buying in North America and Brazil during the second half of 2022."

These two factors contrast against expectations from the company that expectations of higher 2023 commodity prices will lead to an increase in farm production, while noting that Ukraine will be down some 45% because of the war, notable because they were pretty much the world's wheat kings.

Also noteworthy is Q3 was a big revenue/EPS miss for Nutrien. Estimates were 3.85 EPS and came in at $2.49. Revenue was 8.53B and came in at 7.91B.

Q4 is a lot easier of a goalpost to hit, with estimates at $2.534 EPS and $7.392 Revenue. A miss here would (logically) definitely be a dumpster.

So, ultimately, I think $110 Nutrien will come, and we may very well see this in the later part of '23, if not the early part of '24.

But before then, it seems that the 60s are imminent.

So, I'd rather do puts on CF than Nutrien into earnings as it stands, but staying flat and playing the consequences is a lot less risk.

The two areas to watch for on Nutrien:

1. $63 to buy
2. $110 to sell

It would be a big, bullish deal if Nutrien doesn't break this daily trendline and just dumps on earnings. $65 commons prices and 3-6+ month expiry call options should definitely be a fat return if you can ride it to the top.

노트

So, like, I said you can generate alpha going puts on Nutrien. But I thought for like an hour today as to whether or not to go put or call before CPI or before earnings, and I just can't help but feel like everything is a gamble.

The setup that I think is the least risky is to go short on a breakout of the trendline in the $88-90 range, which may come post-earnings.

노트

Nutrien must be pumping on earnings based on the trendline and the stop raid today

That or it won't do much and will sideways around like Cisco did.

노트

Nutrien announced a 10% increase on its div and a share buyback of 10% of the float, better revenue, lower EPS.

nutrien.com/investors/news-releases/2023-nutrien-increases-quarterly-dividend-and-announces-intent-launch-new

Postmarket is down $2 and it's still higher than the LOD.

노트

There's a lot to be said for changing your mind on expected short term price action as a week unfolds.

Nutrien probably to $~88 before shorts are appealing imo.

I do not believe that the trendline at $84 will be "resistance" again.

노트

This price action as the day unfolded stinks like it was just a lower high squeeze

But it's still strange.

노트

Looks like Nutrien is going after the trendline at all. I didn't feel good buying at $74 personally and have missed this move. I suppose the chance will be whether a short develops over $87.