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Agribusiness ETFs in Trouble as Potash Cartel Collapses

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There has been some rough trading in the commodity producer world so far in 2013, as a number of issues have kept these companies as underperformers. In particular, sluggish global demand, a low level of interest in commodities, and oversupplied conditions have been impacting a number of products this year.

These trends have definitely taken place in the agribusiness market and especially in the fertilizer segment. This corner of the market has been doing quite poorly and earnings estimates have been falling across the board for the space, pushing the industry down to dead last in terms of the Zacks Industry Rank at time of writing.

If this wasn’t enough though, the space is also dealing with a huge shock as one of the two major potash cartels has broken up, sending shockwaves throughout the industry. The end of this cartel could increase competition and lead to sluggish prices for potash, hurting producers across the board, but helping farmers and other end users in the process (see 3 ETFs for Insatiable Global Food Demand).

Market Impact

This news crushed the members of the North American cartel in the process, pushing down shares of Potash Corporation of Saskatchewan (POT), Agrium (AGU), and Mosaic (MOS) sharply on the day. POT and MOS were down close to 20% after the report hit the market, while the more diversified AGU was down ‘only’ 5.5% on the session.

As you might expect, the report was also received as bad news by the broader agribusiness ETFs in the market. These funds also plunged in recent trading, and could face more trouble thanks to this fertilizer weakness (read 2 Sector ETFs Leading in Inflows).

Two of the most popular funds in this segment are the Market Vectors Agribusiness ETF (MOO - Free Report) and the PowerShares Global Agribusiness ETF (PAGG - Free Report) . Both of these were hit hard by the news, losing over 4% on the day, and then roughly 6% in the past ten day time frame.

Meanwhile, the biggest losers in the ETF world on the news was the heavily concentrated Global X Fertilizers/Potash ETF (SOIL - Free Report) , which has a great deal of exposure to the in focus segment, and on a global basis no less. This fund was down nearly 9% immediately following the report (on high volume), while it lost just a bit more after that, posting a 9.6% loss for the past ten days.

For more on this situation in the agribusiness ETF market and the cartel breakup, make sure to watch our short video on the subject below:

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