Why Did Black Friday Sales Fall by $1 Billion?

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Fertilizer trends recap, September 23–27 (Part 5 of 10) ( Continued from Part 4 ) What inventory levels tell us Inventory levels reflect current industry supply and demand balance and safety stock. When inventory levels rise, they’re often a negative sign, as the supply of fertilizers is outpacing demand. While manufacturers can adjust to the weaker demand by cutting production, they often lag. But when inventory reaches a certain level, it will usually fall as cyclical demand returns or the pace of production cuts begins to outpace falling demand. Inventory declines for seven consecutive months According to the Fertilizer Institute, potash inventory held in North America ended the month of August with 2.63 million mt (metric tonnes), falling from 2.87 million mt in July. This is the seventh month of consecutive decline that the industry has seen. This decline reflects higher demand over supply for potash, which is positive for sales volume. Inventory drawdown slower than historical data On a year-over-year basis, however, inventory growth could be on the rise. While inventory was growing at close to a zero rate earlier this year, it appears to be picking up momentum. Compared to the same month last year, inventory grew by 8.78% in September, and is now higher, at 9.40% in August. Impact on potash manufacturers Analysts often use the year-over-year change to factor in seasonal purchase behavior. While the decline in inventory was positive, year-over-year growth suggests demand is lagging compared to last year. Falling crop price, falling Indian currency (which makes operations more expensive for Indian farmers), and uncertainty over the impact of Uralkali and Belaruskali’s recent partnership breakup are likely reasons for slower inventory drawdown. This means potash companies such as Potash Corp. (POT), Intrepid Potash Inc. (IPI), Mosaic Co. (MOS), and, to a lesser extent, Agrium Inc. (AGU) could see weak sales volume during their upcoming third quarter earnings results. Such weakness could also prompt companies to cut prices—a further negative. Revenue and earnings will be negatively affected by lower sales volume. If inventory growth rises, fertilizer stocks could see further declines in profits. The Market Vectors Agribusiness ETF (MOO) will also be impacted accordingly. Continue to Part 6 Browse this series on Market Realist: Part 1 - Rain helped crop condition but is negative for fertilizer stocks Part 2 - Corn inventory set to cross 2010 high, supporting long-term price Part 3 - High fertilizer prices could hurt sales volume in the short term View comments
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