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The headline portfolio of MoneyShow’s Jim Jubak, Jubak’s Picks, isn’t big enough to hold both Yara and new entry Potash, so he’s selling the older pick.

When I bought Potash of Saskatchewan (POT) for Jubak’s Picks on April 4, I said I’d buy it now even though I didn’t like most cyclical stocks in the current market environment.

My preference for Potash of Saskatchewan isn’t just over other cyclical stocks, however. I also prefer the stock to that of other fertilizer producers. The fundamentals for potash producers such as Potash of Saskatchewan look substantially better than those for producers of nitrogen and phosphate fertilizers.

This is why I’m going to take the opportunity of an up market today to trim my fertilizer exposure, by selling shares of Yara International (YARIY) out of my Jubak’s Picks portfolio.

All parts of the fertilizer industry are adding capacity, which has a tendency to depress prices when demand isn’t growing like corn in Iowa in July. But the potash market is effectively controlled by the two global cartels, Canpotex of Canada and Belarussian Potash, that together account for 70% of global supply.

In most years, the two cartels work to match production with demand, so that the potash industry avoids huge price swings and long-term gluts. The nitrogen and phosphate markets don’t have anything like that discipline.

Phosphate, which is mined as potash is, is looking at big increases in capacity from mines in the Middle East: Saudi Arabia, Iraq, Jordan, and Israel. Big additions to supply scheduled to come on line in 2012 and 2013 as countries in the region, especially Saudi Arabia, invest to build up their domestic exporting industries.

In nitrogen fertilizers, where the main constraining factor is the price of natural gas, the huge global glut of gas that has led to 11 new plants, adding up to 10 million metric tons of new capacity, scheduled to go into production by mid-2013. The nitrogen market is likely to be seriously oversupplied by 2013/2014, Credit Suisse concluded in an April 3 report.

Under these circumstances, I’d much prefer to own potash producers such as Agrium (AGU), Mosaic (MOS), and Potash than companies overweighted to phosphate and nitrogen fertilizers.

That’s apparently a preference shared by Yara International, the world’s biggest producer of nitrate (a nitrogen fertilizer). On April 2, Yara announced that it would buy a 20% stake in IC Potash (ICP) of Canada to gain more access to potash fertilizers. Yara will get 30% of the production from IC Potash’s Ochoa project in Ne Mexico.

In the long term, I see Yara International as a play on the increased need for fertilizer to feed a world that demands more food in general and more protein in particular. Yara is especially strong in the Brazilian and India markets.

In the short term, I prefer to own Potash to Yara. I’d recommend selling Yara—the shares are up 16.3% in 2012, through 1 p.m. on April 11—if you buy or own Potash, so that your portfolio doesn’t get too overweight in fertilizers when the overall market is so twitchy.

Yara International has been a member of my Jubak’s Picks portfolio since April 25, 2011. I’m selling the shares today with a 12.3% loss since that purchase date.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Polypore International as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund’s portfolio here.

Tickers Mentioned: Tickers: YARIY, POT, AGU, MOS, ICP

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