The global population has more than doubled since 1950 and is expected to grow from 6.7 billion in 2008 to 9.2 billion by 2050. Unfortunately agricultural output, in particular in developing countries, is not growing at the same rate. The historical under-application of fertilizer has led to a chronic low yield performance whereby farmers in China, India and Brazil are producing only a fraction of their US counterparts. It is clear that the world is in need of more fertilizer as global crop prices rise and inventories and arable land are decreasing. The use of potash will help these developing nations as well as developed countries cope with such challenges as providing healthier foods to growing populations, offering sustainable energy alternatives, producing more on less land, and preserving resources for future generations.
As a result, potash has quickly become one of the hottest sought after commodities on the market today. Mined from mineral deposits left by evaporated prehistoric seas, potash is used primarily as a fertilizer and subsequently for feed supplements and industrial processes. Since approximately 95% of the world’s potash production is sold as fertilizer in the agriculture industry, the main demand drivers for potash are agriculturally related. Based on the demand for grains that are grown to produce food, feed, fiber and fuel, potash is hence driven by both population and economic growth.
In 2007, tight supply and demand fundamentals led to an increased potash price with the global spot market nearly doubling from $210 a tonne. Prices for potash to end consumer have increased by 150% or more in the past year. According to Sean Silcoff of Canwest News Service, Canpotex International, the export organization who sells potash on behalf of the Saskatchewan producers, recently sold potash for US$1,000 a tonne to Southeast Asian palm oil farmers – up fourfold from the previous year. This economic world growth is expected to continue well into 2008 with potash demands projected to grow on average by more than 2 million tonnes annually. Thanks to the higher demand from farmers around the world looking to increase yields and record crops, potash continues to experience record highs.
Growing demand for this key nutrient, coupled with supply constraints, shrank inventories to historically low levels and drove up prices globally. Given the worldly shortage of potash, companies in Saskatchewan and their peers in Russia and Belarus have jacked up prices more than twofold this year.
Potash Corp. of Saskatchewan (TSX:POT), the world’s largest producer of potash moved from the 11th largest company by market cap on the TSX from C$36 billion at the end of 2007, to where it currently sits in the top five at C$63 billion. The following is a list of other notable market caps in the industry: The Mosaic Company (NYSE:MOS) at $56 billion; Uralkali (RC:URKA) at $25 billion and Agrium Inc. (TSX:AGU) at $14 billion.
