LXU

LSB Industries

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$6.75 +74.77%
Jennifer's avatar
$22.2m follower assets
Brace Yourselves: The Energy Crisis Stands To Get Much Worse
As the new month begins, the high-pressure systems over the Northern Hemisphere will advance. The forecast image below shows two main high-pressure areas trying to connect across the north pole. During Winter, this might have enough power to create cross-polar ridging, which is a very potent cold winter pattern.

SNOW COVER FROM OCTOBER TO WINTER

Fall weather can influence the Polar Vortex by building an extensive snow cover over Siberia. Multiple studies have proved that the snow cover extent in October over Siberia has an effect on the weakening of the stratospheric polar vortex.

A stronger winter high-pressure system can develop over the region due to snow cover. The high-pressure area affects the polar vortex, as it helps to send more vertical energy up into the Stratosphere. A weaker polar vortex naturally means weaker polar circulation and a greater chance of cold air outbreaks over the United States and Europe during Winter.

A higher North Hemispheric snow cover in Fall is linked with higher pressure over the polar regions in Winter. This shows a weak polar circulation, meaning that colder air has an easier path out of the arctic circle and down towards the United States and Europe.

Currently, we are already seeing more snowfall than usual over Siberia. The graph below shows the snow cover extent over Eurasia already above the normal levels, with more to come.

The image below shows the snow cover analysis, revealing the current snow extent across the Northern Hemisphere. A large batch is already present over Siberia, earlier than normal.

We can see that if we look at Rutgers‘s great snow cover analysis, showing the snow cover anomaly over the Northern Hemisphere. There is a large anomalous area of increased snow cover over Siberia.

Looking below at the 10-day snowfall forecast, we can see a substantial increase in snow cover. Blue colors indicate snowfall and snow depth increase. All areas from North America to Siberia will increase snow cover.

As pressure systems get stronger and more energy goes upwards into the Stratosphere, it can reach a point where the Polar Vortex can completely collapse. That is called a Sudden Stratospheric Warming event and basically means a strong warming event of the Stratosphere and a following collapse of the Polar Vortex.

The corresponding average temperature 0-30 days after an SSW event shows that most of the United States is typically colder than normal, along with Europe.

According to GoRozen's July 2019 Agricultural Markets post:

There is mounting evidence indicating we are entering a potential period of very low sunspot activity, caused by a confluence of overlapping Gleissberg and Suess-DeVries Cycles. If this is indeed the case, the impact on the earth’s climate and by extension growing conditions could be material.

We are putting forth two very controversial ideas. Before we begin, we would like to state that we are not trying to weigh in on the impact of CO2 to global warming. Instead, we would like to draw attention to a completely different factor impacting global temperatures. What’s remarkable about this other factor is that no one has paid any attention to it whatsoever. We are contrarian investors and pride ourselves on trying to identify trends that few others have considered. While we admit that the science is far from certain, the implications of what we are about to discuss are important enough that we believe the investment community needs to, at the very least, consider it.

We believe changes are now taking place on the sun’s surface that could ultimately usher in a significant shift in global weather patterns over the next 20 years. If the world were to enter a period of cooling for any reason, our research tells us that global growing conditions could become much more challenging and that the trend of relentlessly-advancing crop yields we have experienced for almost four generations could reverse.

Scientists, astrophysicists, and meteorologists all carry on a vigorous debate regarding the impact on terrestrial weather of the sun’s changing phases. There is no agreement on the subjects we are about to discuss, so please read to what we have to say with an open mind. All we ask is that you decide for yourself. Stories of the financial difficulties faced by farmers today abound. Low grain prices have reduced profits margins to zero while debt financing requirements continue to grow. If we are right about the upcoming change in global weather conditions, the seven-year bear market in grain prices could end in the not-too-distant future causing agricultural-related investments to surge.


In my Twitter post dated September 10, 2021, I discussed a speech given by renowned historical climatologist, Evelyn Browning-Garriss. I would like to reiterate that my views regarding the extent to which humans have impacted the climate are irrelevant. Natural processes have always affected both climate and weather from the beginning of time, that fact is inarguable.

One of the critical pieces of information I recall that was shared by Ms. Browning-Garriss was the significant impact of early snowfall in Siberia. As you can see from the Severe Weather Europe post above, snow has indeed arrived early in Siberia meaning a potentially severe winter for Europe.

The July 2019 GoRozen report above suggests even more trouble lies ahead for agricultural markets, already struggling with high energy prices and fertilizer shortages.

The coming months will likely prove to be devastating for those that must decide between heating their homes or feeding their families, small business owners forced to close as they battle high energy prices, and global food shortages causing famine in several countries.

A good time to be a commodity investor, but a heartbreaking time for humanity.




$VET.TO $WCP.TO $MOS $LXU
Please DYODD and I'm always happy to answer any questions that I can.
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WFP warns of a food crisis of unprecedented proportions
The World Food Programme (WFP) and the Food and Agriculture Organization of the United Nations (FAO) are out with a new report outlining countries that "are either already starving or on the brink of disaster."

We have a choice: act now in the face of these unprecedented needs, to save lives and invest in solutions that secure stability and peace for all. Otherwise, we will see people around the world face rising food insecurity – and even famines – driving migration, unrest and conflict.

"There is now a very real risk that food and nutrition needs across the globe may soon outstrip WFP's or any organization's ability to respond."


#1: The Fertilizer Shortage

Since the beginning of the Russian invasion of Ukraine in February 2022, the war has disrupted shipments of fertilizer, an essential source of nutrients for crops. Russia is the world’s top exporter of nitrogen fertilizer and ranks second in phosphorus and potassium fertilizer exports. Belarus, a Russian ally also contending with Western sanctions, is another major fertilizer producer. In addition, both countries collectively account for over 40% of global exports of the crop nutrient potash.

The main destination of fertilizer exports from Russia are large economies like India, Brazil, China, and the United States. However, many developing countries—including Mongolia, Honduras, Cameroon, Ghana, Senegal, and Guatemala—rely on Russia for at least one-fifth of their fertilizer imports. Furthermore, the war intensified trends that were already disrupting supply, such as increased hoarding by major producing nations like China and sharp jumps in the price of natural gas, a key feedstock for fertilizer production.

#2: Global Grain Exports

The blockade of Ukrainian ports by Russia’s Black Sea fleet, along with Western sanctions against Russia, has worsened global supply chain bottlenecks, causing inflation in food and energy prices around the world. This is largely because Russia and Ukraine together account for nearly one-third of the global wheat supply. Wheat is one of the most-used crops in the world annually, used to make a variety of food products like bread and pasta.

Additionally, Ukraine is also a major exporter of corn, barley, sunflower oil, and rapeseed oil.
As a result of the blockade, Ukraine’s exports of cereals and oilseed dropped from six million tonnes to two million tonnes per month. After two months of negotiations, the two countries signed a deal to reopen Ukrainian Black Sea ports for grain exports, raising hopes that the international food crisis can be eased.

#3: Recent Food Shortages

Besides the war in Ukraine, factors including the COVID-19 pandemic and climate change resulted in nearly one billion people going hungry last year, according to United Nations.
France’s wine industry saw its smallest harvest since 1957 in 2021, with an estimated loss of $2 billion in sales due to increasingly higher temperatures and extreme weather conditions.
Heat, drought, and floods also decimated crops in Latin America, North America, and India in recent months. Between April 2020 and December 2021, coffee prices increased 70% after droughts and frost destroyed crops in Brazil.

In the face of multiple crises, the World Bank recently announced financial support of up to $30 billion to existing and new projects in areas such as agriculture, nutrition, social protection, water, and irrigation.

Meanwhile, in a separate report, the heads of global humanitarian and financial institutions warned:

The war in Ukraine continues to exacerbate the global food security and nutrition crisis, with high and volatile energy, food and fertilizer prices, restrictive trade policies, and supply chain disruptions.

Despite the reprieve in global food prices and the resumption of grain exports from the Black Sea, food remains beyond reach for many due to high prices and weather shocks. The number of people facing acute food insecurity worldwide is expected to continue to rise.

Fertilizer markets remain volatile, especially in Europe, where tight natural gas supplies and high prices have caused many producers of urea and ammonia to stop operations. This may reduce fertilizer application rates for the next crop season, prolonging and deepening the impact of the crisis.

"Building resilience for the future will require a continued comprehensive and coordinated effort to support efficient production and trade, improve transparency, accelerate innovation and joint planning and invest in food systems transformation.

Agricultural research and development is a chronically underinvested sector, while it has one of the highest returns on public spending.

Addressing both infrastructure bottlenecks and input supply bottlenecks (e.g., fertilizers and seeds) are critical to an efficient food supply system."


Please DYODD and I'm always here to answer any questions that I can.





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Jennifer's avatar
$22.2m follower assets
The GoRozen Split: A Formula For Success Includes Agriculture
In one of Goehring & Rozencwajg’s top posts of 2022, “The Commodity Bull Market Has Only Just Begun” they mention a frequently asked question:

Have I missed it - is it too late to make an investment in natural resources?”

Since their June 16th blog, many commodities & related equities have further declined and are undervalued, perhaps more than any other time in history.

This chart shows the returns of the Goldman Sachs commodity index versus the level of the US stock market, as measured by the Dow Jones Industrial Average.


Over the last 130 years, there have been four times when commodity markets became radically undervalued versus the stock market: 1929, the late 1960s, the late 1990s, and today.

According to their research, constructing a natural resources equity portfolio that consisted of 25% energy, 25% metals and mining, 25% precious metals, and 25% agriculture would have significantly beaten the stock market in each of these cycles.

I have written previously about energy, precious & base metals/mining, but haven’t yet mentioned agriculture. I had been waiting to re-enter the sector as many equities spiked following Russia’s invasion of Ukraine. At the time I held the ETF $WEAT and a small position in $NTR, which I fortunately sold close to the top. Having come off their 52wH’s after large upward moves the past 12 months, I am in agreement with GoRozen -- stating fertilizer stocks “remain extremely cheap based upon their earning power”.

On April 21, GoRozen came out with another research report about the natural gas crisis. In the report they discuss why the global shortage of fertilizer is a huge problem, potentially one of catastrophic proportions.


In Europe & China, surging natural gas and coal prices have severely disrupted nitrogen and phosphate fertilizer production. Fertilizer shortages were created in Australia and South Korea, as Russia and China banned urea and phosphate exports. With Russia and Belarus supplying almost 40% of the world’s potash, the impact on the global fertilizer market has been enormous.

The size of the global grain harvest has grown over the past decade and fertilizer applications have seen a significant increase. Nitrogen has had its production cut by 5% in Europe, and Russia constitutes 30% of the total export market. The availability of nitrogen will have an impact on yields, as GoRozen estimates that as much as 40% of the coarse grain yield increase since 1961 can be attributed to increasing application of nitrogen.

As countries seek to provide for their own citizens first, fears of scarcity and price increases could see the emergence of food protectionism for the first time since the 1970’s. Countries are likely to restrict agricultural exports and prices will be driven up further.


Another catalyst for a rise in fertilizer prices could be an expected announcement from the Biden administration, ruling that annual biofuel blending mandates for the refining industry could last for three years rather than one. The extension of the E-15 mandate is expected to provide additional demand pressure on corn, though to what degree remains uncertain.

The Inflation Reduction Act, a massive climate legislation deal, included extended credits for biodiesel and incentives for sustainable aviation fuel needed to reduce emissions from the airline industry. Biofuel advocates say rising public subsidies for the industry could also grow production in unexpected ways.

Lastly, weather patterns have proved challenging for crop yields. GoRozen anticipates a cooling trend driven by declining sun-spot activity will produce adverse conditions that could severely “hinder global grain harvest” for the long term.

Fertilizer producers admittedly aren’t among the sexiest segments of the market. But they produce a product which is vital to ensure our high standard of living. For without modern farm chemicals, high-production agriculture would be impossible and our grocery bills would be considerably higher. While farmers are among America’s unsung heroes, agri-chemical producers are equally under-appreciated.

To understand what drives the fertilizer industry, it’s first important to know what the main fertilizers are used for. For those of you who don’t garden, the three macro nutrients essential for healthy plant growth are nitrogen (N), phosphate (P) and potash/potassium (K). Sulfur (S) is needed in smaller amounts than the other three, but is often used as a soil amendment. Fertilizer producers often specialize in just one of these three nutrients, or sometimes all three.

Nitrogen fertilizer is made through a combination of natural gas and air, while phosphate and potash are typically mined from the earth, although some commonly used fertilizers—such as monoammonium phosphate (MAP) and diammonium phosphate (DAP)—combine nitrogen with phosphate rock.

It’s also useful to know that nitrogen is the most widely used nutrient, especially in corn and grain crop production, while phosphates and potassium are mostly used in legumes, fruits and vegetables.


Fertilizer companies ultimately profit from buoyant N-P-K prices, and rising nutrient prices are determined by three key variables: 1. rising crop prices (and thus rising fertilizer demand), 2. input costs (e.g. natural gas prices) and 3. currency factors (e.g. inflation).

The current inflationary backdrop is particularly worth mentioning. In fact, some of the strongest bull markets in fertilizer stocks have occurred when the inflation rate was increasing at a sustained fashion over a period of several months to years. Today’s inflationary trend is a prime reason why fertilizer stocks are strengthening, for dollar weakness—plus supply constraints—typically translates into commodity price strength.

My current holdings include $MOS (The Mosiac Company) and $LXU (LSB Industries Inc.)
For those looking to invest in the sector, other suggestions for your watchlist include $CF (CF Industries Holdings, Inc.), $NTR (Nutrien Ltd.), and $UAN (CVR Partners, LP).

Please DYODD and I’m happy to answer any questions that I can.
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