Everything that you ever wanted to know about the current market for Potash
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.
India May Pay as Much as 5.4% More for Potash Supplies
North American potash inventories tighten furtherMorgan Stanley: Phosphate And Potassium Supply Threats Are Greater Than Investors Realize