Fertiliser, a sector of the mining industry which tends to only attract interest when there's a takeover bid on the table, or when big developments are planned, is moving into a sweet spot of strong demand and rising prices.
For BHP and Anglo American, which have major potash projects poised to push ahead the recent surge in food prices could be the difference between committing funds to achieve completion or keeping a finger on the pause button.
A fleet of small potash focused stocks busy developing operations on dry salt lakes in outback Australia and northern Africa should also benefit from the food-price revival as farmers feeling richer buy more fertiliser.
Share price moves by potash players since food prices started rising up have been mixed, largely because they are at different stages of design, funding and project development.
Two of the strongest performances have come from Danakali, which is behind the Colluli project in the East African country of Eritrea, and Kalium Lakes, which is developing the Beyondie project in Western Australia.
Since a long slide to A28c just before Christmas, Danakali has sparked up to trade around 41c thanks in part to the securing of US$250 million in debt and equity finance to push ahead with the half-owned Colluli development. Bell Potter Securities reckons Danakali is heading for a price of A99c.
Kalium Lakes reported yesterday that construction of the Beyondie project was 80% complete with first production of sulphate of potash scheduled for the September quarter.
BHP, which has already sunk more than US$2.5 billion into its big Jansen project in Canada, has delayed until mid-year a decision on whether to spend another $2.7 billion to complete construction of Jansen which has the potential to be one of the world's biggest sources of potash.
Anglo American's potash play is the Woodsmith project in North Yorkshire, a development started by Sirius Minerals but sold when funds ran low. Anglo American estimates that $1.1 billion has been spent on Woodsmith so far and its plans to spend $300 million a year over the next two years in continuing with the development.
The emerging potash projects will produce a variety of material including sulphate of potash (SOP), muriate of potash (MOP) and polyhalite (many salts) but all have the same target market, farming.
It is the recent increase in food prices which should spur BHP and Anglo American to accelerate their interest in developing a "green" mining division to replace operations which attract a negative investment (and government) response such as coal mining.
Over the past 12 months the price of most fertilisers, including those which add nitrogen and phosphorous to the soil as well as potassium (potash) to aid plant growth, have been moving higher.
Bloomberg Green Markets, an agricultural news service, reported last month that Nutrien, a big North American potash producer, had stopped taking orders until April when an increased price schedule takes effect, a move which reflects tight supplies.
Investment banks which track soft commodities have been telling clients that higher prices for basic food such as cereals will flow into the profits of all fertiliser makers whether they are focused on nitrogen-based material such as urea, or potassium-based material such as potash.
Corn prices in the US have risen from $3.12 a bushel last August to trade this week as $5.32/bushel. Wheat is up from $4.75/bushel to $6.63/bushel. Soy beans are up 50% from $9/bushel to $13.73/bushel.
Morgan Stanley said in a note to clients late last week that rising soft commodity prices were paving the way for fertiliser gains.
"We view soft commodity prices, specifically for corn and soybeans, as leading indicators for fertiliser demand," Morgan Stanley said. Increase demand for fertiliser will flow into the price and then up to fertiliser producers, a promising sign for new potash producers and encouraging for potential entrants such as BHP and Anglo American.
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