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Everything that you ever wanted to know about the current market for Potash

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February 16, 2011 – Comments (4) | RELATED TICKERS: POT , MOS

Potash is a nutrient that helps farmers increase crop yields.  Naturally with the prices of agricultural commodities soaring one would think that the price of things that will help farmers get more bang for their buck would be rising as well.  They are, but slowly. 

After peaking at a price of well over $800 per metric ton back in late 2008, a short-lived phenomenon created by an temporary inventory shortage and the commodities bubble, the price of Potash has slowly climbed to just under $400 per metric ton today.

China recently negotiated a price of $400/ton for 2011 and India, the world's largest importer of Potash, is attempting to negotiate a price of slightly lower than that, around $390/ton.  A price that low might be temporarily bearish for the sector.

I fully expect the prices of potash to continue to rise.  Not only do I strongly believe that the price of corn and other agricultural commodities will continue to rise throughout the year...at least until this summer (with corn potentially peaking at near $8/bushell), but potash supplies are relatively tight.

As you can see, potash inventories are currently 24% lower than their five year average, a period which includes the low inventory levels of 2008, and 26% below their level at this point a year ago.

Tight supply combined with high demand should be bullish for potash producers like, of course Potash Corp. (POT) and Mosaic (MOS).  I personally chose to invest in the latter because it is cheaper on a valuation basis and it has stated that it plans to increase its production by production capacity is by 60% between now and 2020.

Deej

Sources:

India May Pay as Much as 5.4% More for Potash Supplies

North American potash inventories tighten further

Morgan Stanley: Phosphate And Potassium Supply Threats Are Greater Than Investors Realize

4 Comments – Post Your Own

#1) On February 16, 2011 at 10:17 PM, devoish (98.39) wrote:

Phosphorus from manure applications can be a potential pollutant. There are several reasons for this. First, as livestock and poultry farms have become more intensive, greater amounts of feed are imported onto the farms resulting in accumulation of excess nutrients in manure beyond what can be used by the crops on the farm. Even when there is no overall excess of nutrients on the farm, application of manure nutrients is commonly done based on meeting the nitrogen requirement of the crop with the nitrogen content of the manure. Since the relative amounts of nutrients required by crops is different from the relative amounts contained in most manures, there will usually be an excess of phosphorus and potassium (K) applied in this system. This is illustrated with corn and dairy manure in Figure 2. Notice that when manure is applied to exactly match the available nitrogen—requirement of the crop, almost twice as much phosphorus is applied as is required by the corn crop. The relative differences will vary with different crops and manures but a similar trend will be observed.

Ultimately we need to move toward a better overall balance that minimizes the application of excess nutrients. In the meantime, management strategies are being developed to help farmers make decisions about when, where, and how to apply their manure to maximize the agronomic and economic benefits from the manure nutrients and minimize the potential environmental impact. Since the major losses of phosphorus from fields is through runoff and erosion, best management practices that reduce these processes can be very helpful in minimizing the environmental impact of the excess phosphorus that is applied. An important tool in making these management decisions is the Phosphorus Index, which helps evaluate the sources of phosphorus and the potential transport of phosphorus from the farm fields to give an indication of the risk of phosphorus pollution and to guide improved management. For more information see the Penn State publication "Agricultural Phosphorus and the Environment."

http://cropsoil.psu.edu/extension/facts/agronomy-facts-13

There's more to know than I have digested yet, too. But basically phosphorus has been incorrectly applied, incorrectly timed, and most farmers could save money, reduce pollution, and maintain yields by using fractions of what they do now.

http://www.organicfacts.net/organic-cultivation/organic-fertilizers/nutrient-value-of-organic-matter.html 

Best wishes,

Steven

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#2) On February 16, 2011 at 11:24 PM, awallejr (83.73) wrote:

This sounds like a replay from 2008, and then the market for potash crashed.

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#3) On February 18, 2011 at 10:53 PM, chatty0894 (< 20) wrote:

EVERYTHING crashed in 2008!

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#4) On February 19, 2011 at 12:26 AM, awallejr (83.73) wrote:

Yup, but potash was getting the same hype in the summer of '08 as it is now.  I look at their P/Es and fundamentals now, instead of chasing again on momentum.

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