EDITOR: | December 22nd, 2013 | 1 Comment

Potash story remains intact but some patience may be required

| December 22, 2013 | 1 Comment
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npkDespair not, potash investors, producers and explorers: the trend is your friend.

Just outside the western Pakistan city of Peshawar, farmers are protesting against the government’s decision to build what is called the Mega City Housing Scheme on their land. They wanted to hold on to what they call very fertile land. In Ghana, farmers are expressing concern at the rate at which large tracts of arable lands are being developed by estate developers. They say this will soon have an impact on the country’s food security. It’s a trend that is happening throughout the world, in villages and on the edges of spreading cities and towns. Here in Australian, much of Sydney’s historical fruit and vegetable growing land has disappeared under urban sprawl.

In China, under the plans announced at the Communist Party’s Third Plenum, $6.4 trillion is to be spent urbanising the country’s less developed regions; that means less arable land and fewer farmers to work what remains. According to the Asian Nikkei Review earlier this month, Chinese cities are forecast to see another 300 million migrant workers over the next two decades, which will dramatically increase demand for food. Already, 80% of China’s farmland is potash-deficient. China has to feed 20% of the world’s population on 9% of its arable land, with 6% of its fresh water.

The year 2013 was not a good one for the potash story. Apart from the Belarus-Uralkali stoush, price falls put pressure on producers and drained investor enthusiasm from potash explorers. But the demand story remains intact: the forces working for increased potash demand are inexorable. Not only is the world‘s population continuing to climb, but an increasing number of people can afford better food.

Less land, fewer farmers and millions (hundreds of millions) more city dwellers mean only one thing: the need for higher crop yields, hence more fertilizer.

According to the UN Department for Economic and Social Affairs, developing regions could add 3.2 billion new urban residents by 2050, a figure larger than the entire world’s population in 1950. Their report this year predicted that, by 2050, more than 6.25 billion people will be living in cities.

The growing urbanisation has also increased competition for land between real estate developers and farmers. It has also put a strain on the available resources such as adequate housing, water and sanitation systems, health facilities and schools, among others.

The Food and Agriculture Organisation (FAO) warns that urban expansion encroaches on the available agricultural land, leading to low productivity.It says that, as urban zones continue to expand, the three major components of food security, which are food availability, accessibility and safety are likely to be affected.

Just look at one of the poorest countries in the world: Rwanda. It is urbanising at the rate of 4.8% a year; its capital, Kilgali, is growing by 9% a year.

If farmers are cutting back on potash-based fertilizer, this is but a temporary situation. They cannot let their land continue to degrade, and there is no substitute providing the qualities that does potash. This product is vital to key cash crops that sustain major economies: without potash, you cannot have high yields of cotton, rice, sugar cane, palm oil and corn.

The agricultural economies of three of the four BRIC nations depend heavily on potash imports. India imports 100% of its needs, Brazil 91% and China 50%.

The future for potash is strong. It just may take a little more time for that to become apparent.

How long was underlined in the December commodity review from Scotiabank. The spot potash price FOB Vancouver dropped from $417.50/tonne in July to $320/tonne in November and even lower in December. Scotiabank expects the first half contract with China may even be settled at under $300/tonne. But there is one piece of good news: prices in Brazil are steadying.


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Comments

  • Dave G.

    No where to go but up over the long haul…..the population growth numbers speak for themselves. Potash=food. Good article, reminder of the big potash picture.

    December 23, 2013 - 10:52 AM

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