Pop quiz - which of these price curves is not like the others?
This chart is from the brilliant presentation* by John Malinowski, Simplot Agribusiness on July 15 in Canada. (When we weren't enjoying the single-payer health system, we really got some great information!)
It compares fertilizer prices against a "basket" of commodity prices. The "100" line is the ratio of commodity prices at that time to N-P-K prices. Basically, it suggests N and P are relative bargains right now, but K....
My take-away (and you have to use that term several times in the biz now) was the potash boys are fooling themselves if they think they can defy economic gravity or force their customer/horses to drink.
What I heard from John was Canadian potash producers are betting the mine on India. Meanwhile, the stuff is piling up unsold.
Yesterday, Potash Corporation (POT) announced that North American inventories of potash were on the rise again and were currently 115% higher than the five year average. Despite production cuts from Potash (POT), Mosaic (MOS) and Agrium (AGU), supplies have been on the rise since the second half of 2008.
With the announcement, Goldman Sachs (GS) adjusted their price targets for the three major North American potash producers. Mosaic saw its price target increase from $45 per share up to $50 per share. Agrium saw its price target increase from $54 per share up to $56 per share. And Potash Corporation saw its price target reduced from $105 per share down to $96 per share. Goldman maintains its Neutral rating on all three companies. [More]
With natural gas prices floundering and massive phosphate production capacity about to come online, potash producers have picked an odd time to try to swim against the tide.
From my vantage point, buying over-priced potash makes no sense, as we really don't know (IMHO) whether we are using the reserves in our soil as well as we could be. I stopped applying K last year, and if my soil tests decline as slowly as massive applications made them rise, I can wait the potash industry out, I think.
* E-mail me for the whole PowerPoint presentation.