Mark Anthony

The Global Agricultural Boom: No Bubbles Here

Michael:

With due respect, I disagree with you and I think you have NOT presented a case directly relevant to POT, a fertilizer company, not a food producing company. You need to concentrate on the supply/demand of fertilizers, not food, if you want to discuss the fundamentals. You have not talked about potash fertilizer in your article.

But let me sidetrack a bit to answer User176952. There are many factors in the food price raise. People's appetite do improve. As people in countries like China and India gets more wealthy they eat more meat. So more food is consumed to raise animals in order to provide the meat. Population also grows, and food production declines due to deteriorating environment, pollution, loss of arable land, climate change, La Nina which causes production loss etc. Some of these factors are long term, some are temporary.

I do believe we are seeing a bubble situation in fertilizer players like POT. But we are still in an early stage and I would not recommend shorting these stocks. I am saying they already exceeded their fair value.

As michael said, the arable lands dropped, causing a drop in food production. So why more fertilizer is used on less arable land? You see a problem here. As far as potash fertilizer is concerned, the production has been growing, but the demand is also growing. The growth of supply so far lags the growth of demand, that's why fertilizer prices have gone up.

But the growth potential of the demand is pretty limited and may probably peaked already. There is less arable land where fertilizer is needed. The demand growth is largely due to farmers apply more fertilizer in the hope of producing more food per acre of land. But you can only push per acre production so much. As fertilizer price goes up, farmers tend to use less. Because if they use more fertilizer it increases their cost, and they don't know whether the crop price may collapse by the time of the harvest season, and they may not be able to recope their fertilizer cost. That is a risk they are not willing to take.

On the suppy side, the earth has plenty of potash element. There is tremendous amount of resources to allow supply growth. And the annual production has been going up quickly. The ocean of the earth is a giant reservoir of potash, at certain point of price it may become economical to produce from the ocean.

For this and other discussions on resource investment, please read some of my articles. I plan to write the next series on fertilizers. I currently have no position in POT. My favorite is PGM metals, platinum and palladium:

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