For the New Year, Optimism Permeates Potash Market

- January 8th, 2010

By Leia Michele Toovey- Exclusive to Potash Investing News
Potash producers are confident that the bottom has been hit; and 2010 will be a year of gradual improvement. Potash prices more than halved in 2009 as the effects of the recession rippled through the agriculture industry.  Grain and food prices collapsed, and farmers in developing countries […]

By Leia Michele Toovey- Exclusive to Potash Investing News

Potash prices ready for lift-offPotash producers are confident that the bottom has been hit; and 2010 will be a year of gradual improvement. Potash prices more than halved in 2009 as the effects of the recession rippled through the agriculture industry.  Grain and food prices collapsed, and farmers in developing countries had difficulties finding banks able to lend money to secure supplies of the much needed fertilizer. The result-many farmers skipped fertilizer applications altogether, and others relied on stockpiles.  Very few buyers came to the table, and those who did were looking for bargain basement prices.  In Q1 2009 potash was going for $750 per tonne. Last week, Potash was quoted at around $390 per tonne, freight on board (FOB).

 

Despite the dismal price, there is an air of optimism from producers and analysts. Yes, it is possible for farmers to use of stockpiles, and even skip applications altogether- but both those options are only temporary solutions.  Skipping more than two seasons’ applications in a row will result in declining crop yields; and with the amount of arable land in the world in tight supply- analysts and producers project that many farmers will have to step up to the plate this planting season.  With spring planting just around the corner, potash’s rebound could be just on the horizon.  

 

North American potash producers are resisting Chinese demands despite the fact that European producer Belarusian Potash Company has inked a contract to sell the nutrient to China for about US$350 a tonne, about half the previous price. Canadian companies Potash Corp and Agrium have joined U.S. producer Mosaic in holding out for higher prices. Belarusian Potash Company, on the other hand, has agreed to sell 1-1.2 million metric tonnes of potash to China at the rock bottom price, a price far lower than any analysts projected.  On the other hand, analysts are claiming that that particular contract will likely mark the floor of the market, and now prices will start their gradual rebound.  

Commenting on the precedent set by Belarusian Potash Company, Mosaic’s  CEO proclaimed that he would not match the low price, and in his mind with recovery just around the corner  Mosiac is quite happy to find better-paying customers if Chinese buyers won’t agree to its terms. Mosaic Co expects shipments of potash to increase in 2010.The company is projecting global potash shipments of 47 million tonnes to 50 million tonnes in 2010, compared with global sales of about 32 million tonnes in 2009 Meanwhile, Canpotex, the export arm of North American producers Potash Corp, Mosaic and Agrium Inc has yet to finalize a contract with Chinese importers.

Analysts are echoing sentiment that the potash market is poised for a rebound. Bank of America Merrill Lynch’s Europe-Mideast-Africa analysts upgraded German fertilizer producer K&S to buy from underperform, calling 2010 “a recovery year for all agricultural-input providers.” In a report on Tuesday, Credit Suisse upgraded Potash Corp. of Saskatchewan to outperform and Intrepid Potash to neutral. The brokerage has turned bullish on the potash industry. “We expect improved pricing visibility, favorable farmer economics and the now-attractive price of potash relative to corn should drive solid demand recovery,” Credit Suisse said.

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