stb getting hammered, is elm next?, page-7

Potash Rebound Fertilizes

Byron Hawes

Managing Editor

Potash-based stocks have popped this week as investors decided to disregard last Friday?s ?big? news that the U.S. Senate voted to remove the tax break gasoline producers get for pumping resource-intensive, corn-based fuel into the mix.

Why? Because this well-entrenched ethanol tax credit isn?t likely to wiggle its way past the House or the White House. Just mutter ?politically correct? out loud and you?ll understand.

More to the point: Let?s all look at the larger global picture and why investors are taking a newfound look this week at the beaten-down shares of fertilizer companies such as Agrium and Potash Corp.

Remember, now, for almost every single crop that is produced - corn, soybeans, oranges, bananas, whatever ? farmers must replace nutrients in the soil with new potash, nitrogen or phosphate fertilizers. That?s a big giant input cost, but farmers are compelled to stoke their fields with stuff like potash to increase crop yields at a time when global food prices and food shortages are blossoming.

After all, the world?s population just topped seven billion and that means McDonalds et al will have to accommodate nine billion people with stuff like fries and Big Macs by, say, 2050.

Here's one good example of growing agricultural demand: China, the world?s number two producer of corn, became a net importer of maize in 2010. The reason? Every year, more than 70 million people in China graduate into the middle class, which is a lot like giving a heck of a lot of people an all-you-can-eat coupon to the Let?s-Eat-Western-Style buffet. Every night.

No surprise then that China is turning Africa into what?s now being call ChAfrica; the emerging Asian powerhouse spent $120 billion in agricultural land purchases last year. That?s a lot of fallow-type fields crying out for nutrients that companies such as Mosaic and K+S can supply.

The issue is compounded by the fact that geopolitics is going haywire in a number of countries, especially in the Middle East. Food subsidies in countries such as Egypt are climbing.

So, yes, this week's modest rebound should be welcomed, but the larger picture is this: the sell-down in established fertilizer stocks over the past few months should be seen as one of those long-term buy signals by a market that?s too often blind-sided by short-term red flags.