Potash & Corn Market Ups and Downs

February 12, 2016 11:42 AM

I was fiddling around with my charts this week and I noticed something very interesting in potash. When compared to expected new-crop revenue, there have been a number of points at which potash seems to have indicated tops and bottoms in the corn market. I have placed red circles on areas of interest on the chart below which depicts our indexed potash price compared to expected new-crop revenue from June 2013 through the present.

This may just be a technical aberration, but it does appear that potash knows something about the corn market highs and lows. I'm not suggesting we use potash prices as a predictor of corn futures pricing. I am suggesting that potash prices follow corn prices based on significant market tops and bottoms and it happens in pairs. At circle 1, potash was flat at a short-term corn market low. Same deal with circle 2 but after potash marked those two consecutive lows, corn reversed course and firmed. Potash followed a mildly firmer path.

Potash_eNCRCircle 3 ushered in a period of relative price strength for potash compared to new-crop revenue. Corn price firmness which supported new-crop revenue to just below potash's established price trendline kept potash prices aloft until corn mustered a retest at circle 4. Here again, potash hit two major tops in a row and changed course. What concerns me is the possible placement of a circle 6. Circles 1 and 2 demonstrate that potash does not have to mark corn price lows on the same price level. Circle 1 tapped a corn low with K in the $850 area followed by circle 2 with K around $675.

The question is, will circle 6 indicate the next major low in new-crop revenue on a flat price trajectory as with circles 3 & 4, or will potash find the next major short-term corn low at a higher level than circle 5? The Dec. 2016 corn price at the circle 5 low was $3.57. If potash prices remain flat near-term, as is expected, circle 6 would have to have corn at $3.57 before potash would change course again.

North American potash producers are very bearish on K prices for spring. In an article for Mining.com, MosaicCo forecasts more price softness from P&K near-term. If their projections are correct, retail potash could fall to $350 per short ton from today's $380.61. Let me say again as a precautionary note that I am not suggesting potash prices are predictive of corn prices, but I refuse to publish the December corn price that $350 potash projects to for fear of starting a panic.

It could be that potash prices include some mysterious ethereal knowledge of corn prices and can mete out corn market highs and lows somehow. The more likely scenario is that potash prices do want to follow corn but will stay tight on the charts with major highs and lows in order to avoid leaving price potential on the table as seen during the period between circles 3 & 4. That would have potash running sideways with a bearish bias and corn prices dipping between now and the next junction of K and Dec futures prices. That would be a logical inverse of the potash new-crop revenue relationship that we saw between circles 3 & 4.

They used to say "oats knows." This analysis suggests potash knows a thing or two about the corn market itself. If potash and new-crop revenue stay true to the form presented in the above analysis, there will be another low tested, marked and approved by potash before vitamin K prices firm. Where that junction occurs will tell us volumes about the interaction between potash prices and the corn market.