Allana mention at the end ;)
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The State of the Potash and Mineral Fertilizer Market
Posted on October 12, 2012 by Alessandro Bruno
The USDA’s corn production has dropped from to 122 bushels per acre, which represents a sharper than expected fall. The lower crop forecast, and corresponding high crop prices, is expected to prompt farmers to maximize harvests, driving demand for potash and phosphate (and Nitrogen). As grain prices rise, mineral fertilizer prices will also rise. Demand for potash remains strong worldwide and that the potash mining sector is still in a good state of health, even as some of the main players from Potash Corp to Mosaic and Yara have also experienced intermittent periods of lower than expected sales over the course of the year. A rise in nitrogen fertilizer projects also suggests that demand for soil nutrients is expected to remain high for the foreseeable future. Indeed, Yara, one of the largest nitrogen suppliers, has observed increased demand for this commodity, observing record high deliveries and higher prices for its NPK (combining nitrogen, phosphate and potash) fertilizer to wholesale dealers.
There is good reason, therefore, for continued confidence in the international potash market, as reflected by the number of projects coming on line in Africa and North America, along with sustained demand for potash worldwide. High economic growth in a growing number of African countries suggests that farmers there will start to adopt more advanced agricultural techniques, requiring the use of potash based fertilizers. Nevertheless, it has been a rollercoaster year for investors in the commodities, including phosphate or potash. This month’s across the board share price drops for potash, in particular, are not a reflection of individual companies’ performance and much less an indication that demand for mineral fertilizers will diminish. Potash, phosphate and other commodities have been affected by the ‘viruses of economic uncertainty that affects any business with global market implications. There are still clouds hovering over the markets and they are leaving victims in their path of ‘destruction’ even where this is undeserved. Apart from the European crisis concerns, potash stocks have also suffered from a tardy fertilizer buying season and from excessive expectations. In late 2008 and 2009, potash prices hit record highs, reaching upwards of USD$ 900 a ton. While acknowledging that current prices are just under USD$ 500/ton, it should be noted that prior to the record highs, potash cost less than USD$200/ton. Yet, potash demand is far from stagnant.
The cliché that people need to eat and that therefore fertilizers will continue to be in demand may be old and abused, but it is true. There can be no doubt that mineral fertilizer will remain an in-demand commodity. Individual producers will have their own set of special advantages. Some of the most evident are the production costs, or is how much it costs to deliver the mineral from the extraction to the market. Location is therefore important, as is the target market. Companies securing off-take agreements will have strategic advantages, as will companies with particularly keen domestic markets for potash and phosphate such as Brazil. China, India and Brazil are expected to remain the main importers of potash and consumers of phosphate – though Africa will also become ever more important, especially if the International Financial institutions start to endorse subsidizing mineral fertilizers for the continent. Economic growth, evolving diets and population growth in these regions will ensure demand for mineral fertilizers for many years to come.
The food crisis of 2008 may have been the trigger but prices of phosphate, an essential mineral fertilizer, are being driven by concerns of rapid population growth and fears of another food crisis in 2012-2013. Agricultural productivity, insofar as the extent of cultivated land per capita has become half of what it used to be in the 1950’s, is stagnating as is the availability of land. This means that to meet future food supply requirements, agricultural productivity can only be improved by increasing yields from existing plots. Phosphate, as an essential nutrient for which there is no artificial substitute, is a strategic resource as it plays a direct role in food security. Any future plan to increase agricultural production will have to consider Africa, which at present, has not been able to feed itself. Africa is also witnessing intense competition for phosphate mining and production. Mining companies are interested in developing phosphate deposits in Africa and beyond Morocco. Canada’s Allana Potash (TSX: AAA) has achieved important milestones in its billion ton potash project in Ethiopia, targeting the growing Indian (and potentially the African) market for fertilizers. The rest of the world isn’t watching, as Australians, Canadians and Americans are also heading to Africa to extract phosphate in order to sustain depleting supplies.