Short positions in German potash producer, K S AG (ETR:SDF) (FRA:SDF), are finally getting profitable for the bunch of hedge funds who have been betting against the company. The leading short bets in K S AG (ETR:SDF) (FRA:SDF), the largest potash miner of Europe, are held by Andreas Halvorsen’s Viking Global , Citadel and Pennant Capital. See more European short positions here.

Potash Industry

The shortsellers have remained patient over the year, as most of the bearish calls on the salt miner were placed in 2012. As of yesterday the net short interest disclosed to German regulator was upto 9.6% of KS’s outstanding shares. Since July 29, shares of KS have fallen 31% in Frankfurt, pushing the year to date decline to -47%.

Belarus, closed country crashes an entire potash industry

A relatively unknown and until a couple of days ago harmless country is responsible for the shake down of potash industry. The world’s largest potash miner,  OAO Uralkali, suspended its agreement with Belarusian miner, Belarusian Potash Co, thus making the industry freely traded. The decision took competing miners off guard who are now vulnerable to price competition and excess of supply. Previously potash was supplied in fixed amounts and prices were negotiated among the members of the industry.  Belarusian Potash Co had controlled 40% of the world’s supply. The price of the commodity is expected to decline by 33% as it starts trading freely.

Miners, fertilizer makers, agri industry will be affected

The implications of this development do not end here, potash is a crucial component of fertilizers and a reduced price will affect how fertilizers are priced and in turn will reduce the cost of all crops. While lower food prices is good for the consumers, this event changes the whole dynamic of the agriculture industry. While speaking to Bloomberg, Barclays’s analyst Matthew Korn called this development, “a game-changing event, with impacts that cannot be overstated.”

Other than the German salt miner, K S AG (ETR:SDF) (FRA:SDF), several bigwigs of the mining and fertilizer industry also fell. Agrium Inc. (NYSE:AGU) has so far taken a loss of 4.7% in the last two days. Agrium Inc. (NYSE:AGU) makes fertilizers and gets the bulk of potash supply from Canpotex Ltd, the other major potash producer after Belarusian Potash Co.

Potash Corp./Saskatchewan (NYSE:POT), the Canadian fertilizer producer, plummeted as low as 19% in the same period. Shares of Mosaic Co (NYSE:MOS), manufacturer of phosphate and potash crop nutrients, have decline 20% since July 29.

Dan Loeb’s long position in CF Industries looks vulnerable

Interestingly, Dan Loeb very recently disclosed a long in CF Industries Holdings, Inc. (NYSE:CF), a nitrogen and potassium based fertilizer manufacturer. Although the company drives revenue from its potash based fertilizers, it has less exposure to the sector than its bigger peers. The stock is also inflated after rising 11% since Loeb disclosed the position, so it is likely that it will take a while for this news to sink in and the sellers to wake up. Loeb explained in the quarterly letter that CF’s edge is its exposure to low-cost North American natural gas and it has a structural and sustainable margin to competitors.