potash news

http://jutiagroup.com/20110818-richard-kelertas-corn-report-pushes-potash-prices/

TER: Last May you predicted potash prices of $750/ton. When might that occur and what countries are the main drivers for this?

RK: A peak could come anywhere from 18 - 24 months from now. Our thoughts are as follows: We are seeing very tight potash markets. The Chinese have been asking for more. The Indians have now settled a contract for significantly higher than what they wanted to pay. Farmers have been pressuring the government to make sure there is plenty of fertilizer?especially potash and urea?in the fields, but they also want to make sure it?s at a half-decent price.

The supply is now getting out to the fields, but the price has gone up simply because there is a bit of a monopoly, with the major producers represented by Canpotex Ltd. Our view is that the price pressure will continue for the next 12 - 24 months. No major new capacity additions brownfield or greenfieldS are planned for the next two to three years. Really, the new capacity doesn't kick in until 2014 - 2015. So 2011, 2012 and 2013 are going to be very tight markets. That?s on the fertilizer side.

On the food side, we have stock:use ratios that are very low. Crop prices are starting to recover although the second economic crisis we are going through now may cause those prices to ease off a little bit. Some crop harvests are going to be low throughout the world. The stocks of various staples will be tight for the next one to two years. So we think this is a perfect storm for fertilizer prices to continue to run up. It won?t reach the level of the last run up in 2008-2009, but it is certainly a very buoyant market.

TER: What impact do short-term stock fluctuations and economic challenges have on both food prices and fertilizer prices? What about the prospect of a weaker dollar?

RK: As you've seen in the past, it has had a short-term impact. If the fundamentals were weak to begin with, meaning crop stocks were high, harvests were very, very good throughout the world and inventories of nutrients were either at their 5 - 10 year averages or above then you saw a significant downturn in nutrient and crop pricing along with usage. Farmers back off if crop prices areN't high enough because they wont get enough per-acre to justify putting in more nutrients. Plus, the bounce back in 2009-2010 and the beginning of 2011 was because of both strong fundamentals for fertilizers and crops and a tremendous amount of stimulus from governments that were pumped into the market. It remains to be seen whether governments still have those arrows in their quivers. I would suspect that this is going to be a little more drawn out.

Several governments are near crisis situations. The European Central Bank has said it will buy Spanish and Italian bonds; that will certainly help for the time being. The real question is: Are international consumers going to back off on buying feedstuff for cattle, poultry and their own diets? Will the middle class throughout the world continue to demand better nutrition? If that?s the case, even with an economic crisis, you will still see crop prices hold up fairly well. If everyone goes into a cocoon and cuts back on everything, then we could see prices fall back and the recovery will be that much longer. So it does have an impact. In this particular case, we think it is going to be short lived. We think it is going to be a couple of months where everyone steps back and commodity prices generally step back along with that. Nutrients and fertilizers are like any other commodity. They react to the individual fear factors going on in world markets.

As the U.S. dollar continues to weaken over time compared to other major currencies, potash prices in U.S. dollar terms will strengthen alongside the strong fundamentals.

TER: You mentioned some new capacity that might be coming on in 2015. Where is that and what companies are going to be behind it?

RK: PotashCorp (TSX:POT; NYSE:POT; Not Rated*) and Agrium Inc. (NYSE:AGU; Buy Rated) have some new plants. Those are brownfields. We also have the possibility of a couple of larger mines. Allana Potash (TSX.V:AAA; OTCQX:ALLRF; Buy Rated), for instance, may have its open-pit mine in Ethiopia up and running in early 2014. You will probably see only 300-500 thousand tons of potash come out of that operation in 2014, and it probably wont be fully ramped up for 1 million tons (Mts.) until 2015-2016. We may have some more brownfield projects, but if they are deep shaft, those are going to take a heck of a long time. So, the most we are going to see is probably 2-3 Mts. with some brownfield plant expansions coming on by 2014-2015. Allana, which would probably be the first greenfield operation to come on-line, could be producing by sometime in 2014.

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