Potash Weekly Review: Potash on the Leading Edge of Agricultural Demand
Seeds and fertilizers continue to offer one of the more favorable spaces of the market as they can rely on the rapid growth of the world population. Agriculture is also a vast sector that begins with the farmer and ends at the dining room table. Farmers play a big role in determining what is grown based on demand and that factor alone determines the amount and extent of the supply chain that helps to achieve his/her goals and consumer needs. The gap between farmer and consumer is filled with everything from land, weather, technology and, most definitely, with seeds and fertilizers.
All these elements, with the exception of the climate, co-exist in a kind of balance and it is as responsive as a well tuned sports car when it comes to market forces – after all agriculture is the origin of all business practices, including the invention of writing in Mesopotamia and Egypt for accounting purposes. Last year, and continuing in 2013, US farmers experienced an intense drought that managed to drive cereal prices higher as well as soybeans and other seeds. Higher prices encourage farmers to increase their crop production, leading to more need for potash. Demographics also plays a role; China, India and many emerging markets are witnessing unprecedented urbanization and this changes agricultural patterns, less land becomes available and existing farms must become more productive to address changing food consumption patterns, including more meat and wheat products, which presents an additional acreage and productivity burden.
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A ton of beef can require about seven tons of grain needed for feed. While, China had even grown to export soybeans and wheat, in 2013 it recorded a trade deficit having had to increase imports of such commodities, reflecting a typical pattern brought on by its combination of economic growth and social transformation, which is still only in its early stages. This pattern shift translates to very good news for fertilizer exporters. While China signed its 2013 potash contract, last December, at USD 400/ton, all indications are that the next one will be higher. China and India can muster higher market powers during their negotiations, but smaller countries, markets, inevitably have to pay more. Brazil is shaping up to be just such a market. The long term prospects for potash plays are clearly favorable and for those juniors shall be able to maintain the CAPEX costs within their low projected estimates, there will be plenty of opportunities to take advantage of all the peripheral (as well as the larger) markets in Asia, South America and Africa as food demand grows there.
There are three types of fertilizer typically used by farmers and potash is the rarest of these, which lends itself to the semi-monopolistic practices adopted by Canpotex or Soyuzkali, GMBH the new Russian-Belarusian potash trading Company announced on February 18. Whereas potash suffered, or was at least mixed, in 2012; in 2013, the potash markets are expected to perform better with more consumption and more exports projected. As noted often in ProEdgeWire’s coverage of the potash market, Africa represents the new frontier for potash. Last week, Allana Potash (TSX: AAA; OTCQX: ALLRF) announced the reaching of a memorandum of understanding (MOU) with the Ethiopian Agricultural Transformation Agency (“ATA”) to develop the use of potash in Ethiopian agriculture.
The study could serve as a model for the rest of Africa (not by chance the African Union and several UN development agencies have headquarters in Addis Ababa) promoting the use of potash; Typically, Ethiopian and African farmers have relied more on Di-Ammonium Phosphate (Dap) and Urea (nitrogen) fertilizers in cases where alternatives to the more common but far less efficient biological fertilizers are used. The weekly share index for ProEdgeWire potash sponsor saw little change with some of the beneficiaries from the week ending on February 8 giving up some of their gains to record a drop of 4.73%; one possible explanation is that corn prices dropped (though they still remain at high levels due to the effects of the US Drought) are lower than soybeans for the time being. U3O8 Corp (TSX: UWE; OTCQX: UWEFF) was the biggest gainer in the sector. owing to the announcement of a very favorable Feasibility Study for its Berlin Uranium project in Colombia, which is expected to produce phosphate as a bi-product.