Pretty much all of the Agricultural-based equities have earnings this week and things could get explosive.
To start off
This happened yesterday (10-29) Watch the open on CME Group this evening. I doubt a collapse of the grain complex is going to occur in the next few days.
UAN reports after hours on Monday, this may set the tone for the week, but…
FOMC!!! Honestly this might be the tripwire for the week (or a buying oppurtunity?)
I fully expect CF and NTR to beat and could very well run. I’m going to focus on taking a position in either one of these because their supports seem to be pretty solid (NTR 78-79, CF 100, 98 safer) My plan is to watch for resistance basically all week and try to scalp/swing until Wednesday, let FOMC occur and then take a position for earnings. I will be looking for call entries for at least 11-11 and most likely will be buying ITM (probably just one) for earnings in case there is a pullback.
Side plays? AGCO reports 11-01, I think earnings will be pretty good and may cause a sympathy move in DE and CAT. Monthlies and has been pretty strong lately, does not seem to have the obvious buying opportunity that CAT did.
It’s rather unfortunate that FOMC occurs this week because honestly this is going to be the big wild card. If the entire market is eating shit then the best play might be to sit on your hands and wait. If the Ag stocks survive FOMC then that should be pretty supportive and could be an “easy” play.
Be careful, have patience and please keep position sizes appropriate to your accounts. I will try to be on during the week but I have a custom harvester coming so my attention might be divided. Good luck!!!
Here is my AG watch-list if that helps anyone. I have not played GPRE,AMTX, AVD, CHSCP. Some of these have pretty low volume and options spreads can be cost prohibitive.
Brief update, fertilizer companies up this morning, grains up over Russian embargo drama. Wheat may stay higher but corn and soybeans could cool off. LNG also up. I’m still waiting for FOMC but not sure if there will be a pullback before that. Be careful!!
Just spoke with my seed salesman. This gentleman has been in the sales side of the agriculture complex since the 1980s, and is semi-retired. He has a pretty good macro view of the environment and his take for 2023:
Potash companies are producing as much as possible as fast as possible. Very strong demand. (IPI MOS)
Phosphate: China is a major producer and is continuing to NOT allow exports into the foreseeable future. (NTR)
Nitrates should see a price decline going into 2023, possible bearish for CF and UAN. Mixed for NTR.
It seems like chemical supplies are pretty decent.
His advice for me: Do not buy ground, pay off debt. He sees similar prices for grain into next year and thinks farmers will have pretty decent profits. He thinks the dumb ones will continue to spend money like they are drunk and there will be opportunities for expansion for operators that keep their costs in line and have low debt levels. (Common sense but we see over-extension quite frequently in times of high grain prices.)
For this weeks earnings I still plan on playing to the upside on CF and NTR. I would not be surprised if MOS and IPI beat. I do not think they will push the spring highs but there is that potential. If you think to play these look for support buys. These stocks tend to gap overnight so there is definite risk of being on the wrong side. Play safe, best plays might be after earnings are released. Good luck folks.
UAN beat on sales but missed on EPS. Currently down 9%. They have their call this morning at 11:00 est. I will try to get on to listen and see what the issue is. If it was something intrinsic to their company and not indicative of the broader market it does not nullify the potential for the other fertilizer companies to move but does add question to the play.
See high demand through 2023. They think that yields are lower than what USDA is projecting. Think we will see a record corn acres number for next year.
They completed plant updates and repairs this fall which led to the EPS miss.
The think we will see a fundamental shift in how nitrogen is produced and exported. See higher costs for production in Europe remaining for the foreseeable future.
No positions going into close. Let’s see if the rest of the market stabilizes overnight and if earnings shake these companies loose from the trend. Good luck folks.
