Global Notes Amid Commodity Rally

| About: Uralkali (URALY)
Extreme weather across the globe is driving up prices for commodities, from sugar and wheat to heating oil and orange juice, fueling a rally in commodities in the short- to medium-term. In this climate, Russian potash fertilizer majors OAO Uralkali (PINK:URALY) and OAO Silvinit have announced a long-awaited merger; if approved by their respective boards, it would create a company with a market capitalization of about $24 billion, making the combined company the second-largest among the world's biggest potash producers after Potash Corp. of Saskatchewan (NYSE:POT).

The combined company will watch "with great interest" the merger and acquisition activity on the global fertilizer market, but for now it is "limiting itself to observation only," and is aiming at closing the current merger, Uralkali president and general director Pavel Grachyov said.

The price at which Uralkali will buy out Silvinit shareholders who are against the merger will equal that at which the shares are converted in the actual merger itself. Uralkali said it may issue a ruble-denominated bond of up to RUB50 billion ($1.62 billion) to finance the deal. The management of the two companies, which had been one entity prior to privatization in the 1990s, sees synergies of $100 million a year from the merger by 2013. Thomson Reuters has quoted analysts as saying that the deal values the combined company 11% below Potash Corp. They see Uralkali, which had a 30% discount to Potash Corp. a month ago, as a "good, albeit re-rated, opportunity to gain potash exposure in Russia."

Effect of Global Climatic Uncertainty: Although ICE sugar futures eased after India said it would allow some 500,000 MT of unrestricted exports, but were still hovering near a 30-year high, farmers across eastern Australia are assessing the effect of the wettest spring on record. In China, meanwhile, dry late-fall weather may have affected pre-winter development of wheat in some areas. In Europe, snowfall has helped young wheat plants withstand a spell of freezing weather in the European Union.

Agriculture Commodities Outlook 2010 and Beyond: Analysts and agriculture experts are bullish over the future of the agricultural commodity sector, based on weak global production and high demand in addition to the falling U.S. dollar. Meanwhile, the United Nations Food and Agriculture Organization on Tuesday revised its monthly food price index up to a 27-month high, reaching 197.13. The rise, up 4.4% from September and its highest mark since July 2008, is mainly due to increases in global cereals, sugar and soybean prices.

The FAO index is a monthly measure of changes in international prices of a basket of commodities and is closely tracked by analysts and investors as a global benchmark for food price trends. The FAO food price index is inching towards its record high of 213.5, reached in June 2008. Adverse weather, either too dry or too wet, has affected major producers and exporters around the world, from Russia and Ukraine to Canada and the U.S., Germany, Australia, Pakistan and Southeast Asia.
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