Potash Price Stalled by Flat Grain Prices

- March 31st, 2010

The potash market has been making a definite rebound over the past few months; but stalling grain prices have analysts concerned that the rally will flat line.

By Leia Michele Toovey-Exclusive to Potash Investing News

flatlineThe potash market has been making a definite rebound over the past few months; but stalling grain prices have analysts concerned that the rally will flat line. So far in 2010, grain prices have been a disappointment.  Corn has stayed below US$4.00 per bushel, and wheat has floated around the US$5.00 range.

Corn prices of US$4.00 a bushel mark an important line in the sand.  When prices rise above this mark, farmers can justify the extra cost of applying potash by raking in higher profits from the grain prices.  Once prices collapse below that line, many farmers will skip fertilizer applications.  With the price hovering right at they key price many farmers are still procrastinating when it comes to fertilizer applications.  If corn can edge up just a little bit, more farmers will come to market.  The next major event that could impact grain prices is the U.S. Department of Agriculture’s crop production report, which is due out at the end of March.

Potash prices have been gradually climbing with the current going rate peaking at around US $430 per tonne. The government of Saskatchewan, however, is behaving more modestly in its expectations for this year’s potash prices. “We’ve used cautious revenue estimates, especially with regards to non-renewable resources,” Finance Minister Rod Gantefoer told reporters.  The province has forecast potash prices at an average US$308  per tonne for 2010-11, rising slowly, but steadily to US$324  per tonne by 2013-14.

Last year, the government of Saskatchewan made a costly error when it came to projected potash earnings. They predicted that potash would average  US $556 per tonne, whereas the actual price capped out at US $413 per tonne. That lower-than-expected potash price, combined with a crippling 63 percent drop in potash production, resulted in a complete collapse in potash revenues. The province was then faced with the huge burden of repaying potash companies more than $200 million in prepaid royalties.

Company news

Allana Potash Corp (TSX-V: AAA) has completed its previously announced private placement.  In total, 14,422,500 units of the company were sold for C$0.40 each, to generate proceeds of approximately $5.8 million.  Each unit provides the holder with one common share of the Company and one-half of one Common Share purchase warrant of the Company. Each Warrant entitles the holder to acquire one additional Common Share at a purchase price of $0.50 until September 25, 2011. Allana intends to use the proceeds of the Offering to fund exploration and development efforts on the Company’s potash property in Ethiopia and for general working capital purposes.

After dropping its bid for Terra, there is speculation that Yara International (OSE: YAR) will bid on Denver-based Intrepid Potash (NYSE:IPI).  Rumours spread on Tuesday, spiking Intrepid Potash’s stock value by 4.4 percent.  Without any concrete sign that a deal was in the works, many analysts shrugged off the rumours.  Neither Intrepid Potash, nor Norway-based Yara would confirm or deny speculations.

Western Potash Corp. (TSX VENTURE: WPX) (FRANKFURT:AHE) has received the results from two wells of its five-well drill program.  The company has set aside C$8.5 million to expand the resource definition of its milestone property in Saskatchewan. The objective of the program is to define the grade, thickness and extent of the higher grade potash zone around well 003, which reported a composite thickness of 24.4 meters of potash mineralization with a grade of 18.2 wt K2O within the Patience Lake, Belle Plaine and Esterhazy members.

The information obtained from the program will be used to update the company’s national instrument compliant resource estimation. The initial resource estimate contains 32 million tons of indicated potash resource plus 230 million tons of inferred potash resource. The wells reported in the release are the 8th and 9th wells drilled on the property. The Milestone-007 well reported an 18.45m composite intersection of potash mineralization with a weighted average grade of 19.09 wt % K2O across three potash members, while the Milestone-008 well reported a 21.45m composite intersection of potash mineralization with a weighted average grade of 19.88 wt % K2O across three potash members.

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