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Spreading fertilizer on the food price crunch

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May 28, 2008 – Comments (3) | RELATED TICKERS: POT , MOS , AGU

One of the last and quietest of the old-school legal monopolies is making it tougher to feed families the world over, and they have nothing to do with the price of fuel.

Potash and phosphorous are major components of fertilizer, and the costs per ton of these raw materials have more than trebled in a year, following a decade of stable prices. WSJ reported in a front page article yesterday that the producers of these materials have insisted that their prices are being driven by market forces.

That seems to be at least partly true, since food stockpiles world wide are dwindling quickly. However, it also appears that they enjoy a de facto monopoly, and are furthermore quite free to work together abroad, with results that are indistiguishable from price collusion.

In the years following WWI, American potash and phosphorous companies were specifically exempted from anti-trust laws to allow them to work together to capture market share abroad. International and domestic law preclude them from colluding  to set prices per se, but when one company increases prices the others rarely fail to follow suit. And since the domestic price is set by the international market, the result is indistinguishable from domestic price fixing.

Today, potash costs $700 per ton, up from $230 - just a hair over 300%. Phosphorus prices have risen almost as much over the same period. The stock prices of the companies that produce them have followed similar trajectories. With those same companies warning that prices could rise to $1,000 per ton in the near future, we should expect additional gains. And since new facilities to break the supply bottleneck take seven years and $2.5BB to open, we should not expect the trend to reverse anytime soon.

Green Thumbs: POT, MOS, AGU (Potash Corp. of Saskatchewan, Mosaic Co., Agrium, Inc.).

 

3 Comments – Post Your Own

#1) On May 28, 2008 at 11:18 AM, LordZ wrote:

There may come a time when eating may become unfashionable ( at these prices)

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#2) On May 28, 2008 at 12:08 PM, Andyman (94.57) wrote:

Well, if you ignore the hunger problem long enough, it will go away. :(

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#3) On June 06, 2008 at 2:07 AM, TheGarcipian (32.85) wrote:

HeyAndrew (cool moniker, BTW),

I'm in total agreement with you. POT, MON and AGU are excellent long-term picks.  I'd picked up POT & MON both in CAPS and in real life (RL), and have only recently come to revere AGU for its strengths. In fact, I just added a pitch for AGU (shown here), and am hoping it'll go the same way as POT & MON.

Fool on!

--Gar 

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