What Separates AAA From The HerdSome new investors may benefit from this article as I did. It highlights what potash is, where it is going, why it is needed and why investing in a junior like Allana is real long term value as we move toward production. Allana will be one of only a select few juniors that actually gets to production in the near term. Many others are dependant on a take out bid by a major to finance the huge cost of mine construction. The question is "not if" "but when?"
In my oppinion, Allana will be one of those 14 new mines needed and mentioned below. The long term need for potash is not a flash in the pan....and Allana is not a one trick pony...we also intend to drill in Argentina this year.
Karma
Potash Sector Heating Up Again
Potash Sector Heating Up Again
Source: Rick Mills, Ahead of the Herd 08/16/2010
As a general rule, the most successful man in life is the man who has the best information
"With growing demand for food and supportive crop economics farmers have been motivated to begin addressing nutrient deficiencies in their soils." -Potash Corp CEO Bill Doyle
Potash is a major source of potassium. Potassium is found in every plant cell, it helps plants:
- Grow strong stalks
- Resist stress—weeds, insects, disease and changes in temperature
- Improves water retention
- Strengthens roots and stems
- Assists in nutrient transfer
- Activates vital plant enzymes
- Ensures the plant uses water efficiently
- Helps keep the food you buy fresh
China, India, Southeast Asia, Brazil and North America account for over 50% of the world's population and 70% of total fertilizer consumption—over the past 20 years consumption has increased by 85% in these countries.
Brazil is an agricultural superpower and accounts for 7% of world potash consumption. Brazil is the largest South American consumer of potash (its fertilizer market represents 65% of all South American consumption) and has a consumption growth rate of 7.6% per year. The countries soils are potassium-deficient and require potash to remain productive—90% of their potash requirement is imported.
China's (28% of world fertilizer consumption, historically 75% of potash is imported) current grain production is over 41 million tons.
By 2030 grain demand is expected to triple to 156 million tons—meeting this increased demand will have to be accomplished by huge potash rich fertilizer applications. Domestic consumption of meat has risen nearly seven-fold in 30 years, while fruit and vegetable consumption is 10 times what it was just 30 years ago. China's per capita water renewable resources are well below the global average.
India has 17% of the world's population and only 11% of the world's arable land. Its renewable water resources are, per capita, well below the global average. India has no potash of its own and is the world's biggest potash importer—the countries potash use is increasing at over 5% YOY.
Southeast Asia has a combined population of 517 million and while they have abundant water resources the countries making up this region all collectively suffer from a shortage of arable land. Indonesia, Malaysia, Vietnam, Thailand and the Philippines account for 7% of world fertilizer consumption and have no indigenous potash.
The US and Canada are major suppliers of food to the world and are among the most efficient agricultural producers. They consume 14% of world fertilizer production.
Potash demand is increasing YOY. To meet this increasing demand it's been estimated that two million new tons of potash are required each and every year—the equivalent of one new mine being built every year.
And potash is still being significantly under-utilized in many countries. It's been estimated that the world's leading emerging economies Brazil, Russia, India, and China (collectively known as the BRIC's)
will require an additional 28 million tons of potash annually to maximize fertilizer application rates—the equivalent of 14 new potash mines. Potash inventories in June 2010 were reported to be 34% lower than June 2009.
Since 1950, the world's population has gone from 2.5 billion people to 6.7 billion. No less than 75 million people a year are added to this number, the world's population is expected to exceed 9 billion by 2050—according to the United Nations. This will lead to an increased need for staple crops for human and livestock consumption. The United Nations Food and Agriculture Organization (FAO) projects that more than 85% of this additional demand will come from densely populated, developing countries—Asia and Africa
The world's options for increasing food production are limited by the supply of land and water. Either we must a) place more of the world's land under cultivation or b) increase yields on existing acres, or, much more likely, both of the above.
It seems to this author that a huge increase in the application of potash-rich fertilizers will have to happen—the increased use of plant nutrients is the most effective way to increase crop yields in the face of:
- An increasing global population
- Water shortages
- Decreasing arable land
- Improved and diversified diets
From the peak of 1.814 billion acres in 1981 total harvested area of world grains is down 6.8%. Arable land covers just 3% of the world's surface. Based on historical data arable land decreases by 25 million acres annually—it is estimated that one hectare (one hectare equals 2.47 acres) of productive land is lost every 7.67 seconds
- Conclusion
Fertilizers replenish the nutrients in our soil after harvest. These nutrients are mostly taken up by and removed with the harvested crop. These nutrients must be replaced, given back to the soil, in order to ensure next year's crop. This replacement of nutrients is not an option; sure farmers might skip a year, even two, but. . .
"Failure to feed the fields is a trend that can't last for long. While the global recession severely impacted fertilizer demand, the science of food production has not changed. The significant volumes of potash and phosphate that have been mined for crop production must be replaced to sustain the productivity of the soil." Potash Corp.
Today fertilizers are responsible for between 40% and 60% of the world's food supply. The United Nations Food and Agriculture Organization estimates that the total world demand for agricultural products will be 60% higher in 2030 than it is today.
"They key to really understanding what's driving this globally is the pressure on food production and the shifting diets that you're starting to see in China and other areas in Southeast Asia. In terms of what's driving our business, that is it. The volumes, I think, reflect the fact that there's tremendous pressure on potash globally. It's a very tight market and it really all comes back to the intense pressure on food production around the world. Farmers are trying to bring their yields up and really, fertilizer is a critical part of that." -Denita Stann, Potash Corp's director of investor relations
Unlike many resources, potash markets are never disrupted by political interference. Food shortages trigger social and political instability and all governments fear a hungry populace. So the future for potash giants like Agrium and Potash Corp. looks good. But these are mature companies (combined market cap: $43 billion) which have already experienced major growth spurts. An investor would almost have to think a massive surge in earnings by POT and AGU bodes well for the few small junior companies with big potash resources. Potash should be on every investor's radar screens.
- Is it on yours?