In my last article, I talked about rising consumption of proteins like meat around the globe.
I hinted that besides pure-play food and agricultural companies, there’s another sector that stands to benefit greatly.
That sector is fertilizer – and more specifically, potash.
This farmers’ helper is made up of potassium compounds and potassium-containing minerals.
Potash strengthens crop roots and is known to improve crop yield, water retention, disease resistance and nutrient content – while also improving the taste and color of the crop.
The Uralkali Effect
Despite its usefulness to farmers, the $20-billion global potash market has been in a bear market for the last year or so, thanks to developments in the old Soviet Union.
The world’s largest potash producer, Uralkali (URKA.IL), pulled out of the Belarusian Potash Corporation export cartel. The company said it would sell as much potash as it could, and at much lower prices than the cartel.
That sent potash prices tumbling as much 30%, to near $300 a ton by December 2013 – hittings a six-year low.
Prices have since rebounded to about $350 a ton – and more upside is in the cards.
Uralkali is behind this trend, as well… In mid-June, the company cut its projected production volume from 12 million metric tons (mt) to 11 million mt.
It did so – in the company’s words – “to support prices.”
Other producers around the world, including in North America, are cutting production, as well.
And the cutbacks are having their desired effect (i.e., higher prices).
Just last week, the Canadian potash giant, Potash Corporation of Saskatchewan (POT), spoke about “tightness” in the potash market. This news sent the stock up 7% in one week alone.
Facts corroborate POT’s statement, too…
Inventories of potash held in North America have fallen to 2.35 million mt, the lowest level since September 2012.
Demand Shooting Higher
Not convinced yet?
Consider that Potash Corporation’s second-quarter review showed that shipments of granular potash were well above the levels of the prior two years in both Brazil and North America.
Overall, Potash Corp.’s sales in Brazil were at a record level in the first five months of 2014. Brazilian consumption has increased, on average, by 7% per year for the past five years.
Plus, since the North American planting season is done, exports to Brazil will become even more important in the months ahead.
Bottom line: Analysts predict global potash sales to hit a record 58 million mt this year because of the growing demand for farmers’ crops. So shareholders in POT and other potash companies might be rewarded sooner, rather than later.
And “the chase” continues,