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Potash fertilizer prices look ready to rebound as positive US economic data holds promise of record US crop planting and output.
By James Wellstead — Exclusive to Potash Investing News
Following months of sluggish potash and phosphate fertilizer prices, signs of a renewal in US potash demand means potash prices may soon recover.
After continued European and US macroeconomic uncertainty saw crop prices stagnate, and adverse winter weather, a resurgence in the US economy may be signalling a recovery in fertilizer prices.
Strong US housing sector data reported this week generated confidence for fertilizer investors, and led to a positive gain for potash giant PotashCorp. (TSX:POT) in the opening movements of the Toronto Stock Exchange. Positive US economic numbers are providing support for earlier beliefs that farmers may have good reason and capacity to plant record-level acreages across the US.
This data is likely to provide an effective counterweight to concerns over the stability of European markets, which, on top of seasonally low sales in the northern hemisphere, have kept fertilizer markets subdued.
US corn production in particular, representing almost half of crop-based K2O fertilizer application in the US, is expected to nearly double to 1.6 billion bushels by summer’s end, according to the USDA. As a result, corn prices are also expected to fall by next year, down from the current US $6.20/bushel to US $5/bushel next year.
Potash supply correction
Despite the reduced output from Mosaic Corporation (NYSE:MOS) and PotashCorp. in response to Q4 concerns, fertilizer wholesaler Agrium Inc. (TSX:AGU) maintains that “fertilizer is extremely affordable relative to the strong grain prices and cash margins, and we expect global demand for all three nutrients [potash, phosphate, and nitrogen] to increase in 2012.”
Agrium also recently announced its 2011 Q4 report, which states that despite cuts from ore producers Mosaic and PotashCorp., it has not reduced production of fertilizers at its facility in Vanscoy, Saskatchewan.
Agrium, the tenth largest potash fertilizer producer, stated that “recent potash production curtailments should help bring supply and demand into better balance.”
But despite current concern over short-term fluctuations in potash prices, many maintain that the fundamental strength of the potash and phosphate sectors should not be lost in short-term price variations.
PotashCorp. President and CEO Bill Doyle cleared the air when he remarked on the short-term fixation with potash in the marketplace, stating that “[potash] is a long-term business.” While he acknowledged that potash ore prices are currently in a bit of a “lull,” he was positive on the longer-term saying, “I think we are going to have a very robust nine months of this year and I think we are going to have some very good years ahead of us.”
Company news
Resolution of the lawsuit between Mosaic’s South Fort Meade phosphate mine and a coalition of environmental groups may allow the company to resume full-level production at its Florida site for the first time since an injunction in 2010.
The settlement, if met with court approval, will allow Mosaic to begin mining its Hardee County Extension project near Bowling Green, Florida, which would add ten years of production to the life of the mine.
Mosaic’s Executive Vice President and General Council, Richard Mack, commented on the settlement, saying said that it “provides certainty around our South Fort Meade mine and we look forward to bringing it back to full production.”
Alberta potash discoveries
Junior miners Pacific Potash Corp. (TSXV:PP) and Grizzly Discoveries Inc. (TSXV:GZD) have made discoveries along the eastern border of Alberta, Canada which show some evidence of substantial potash deposits within the province.
Pacific Potash announced last week that it is “the first company ever to drill for and discover potash” within Alberta. The find was made at its 100 percent owned Provost Potash Property, located on the Saskatchewan-Alberta border near Provost, Alberta.
The findings are the result of the company’s 2011 drilling program that commenced in November. Drill hole PPC-37, one of the two prominent holes, produced weighted average grades of 11.85 percent K2O (18.76 percent KCl) over 10.01 feet (3.05 m) within the Upper Zone at a depth of 4,353.67 feet (1327.25 m), as well as 21.25 percent K2O (33.64 percent KCl) over 1.31 feet (0.40 m) in the Lower Zone starting at a depth of 4,401.57 feet (1,341.80 m).
Just 300 km south of the Pacific Potash find, Grizzly Discoveries gave credence to its name when it too announced this week that it had found potash just outside of Medicine Hat, Alberta. Grizzly found visible potash minerals in its drill core for the interval between 1,648.5 m and 1,670.85 m below surface at the South Block of its Alberta Potash Project. But despite the initial successful identification of potash ore, a likely candidate for solution mining, Grizzly’s stock price dropped about ten percent following news regarding concerns over only 0.3m of 31.1 percent K2O. It rebounded slightly to start today at CA $0.43.
Grizzly has an additional four well sites on its 100 percent owned North Block, as well as two other permitting wells on its South Block. Further, Grizzly has partnered with Pacific Potash on a 50:50 joint land permit near Provost, where it has one drill hole with unreleased results.
These Alberta mineralization finds are located close to some of Saskatchewan’s world-renowned salt deposits, and will bolster the rich resource credibility of a province steeped in oil and gas extraction.
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.