Think-About-It

Grain Prices Require Substantial Support to Overcome Bearish Fundamentals

Maneul,

Corn acres consume roughly 5.6 times more fertilizer than soybeans and 2.5 times more nutrients (measured by pounds/acre, combined nitrogen + phosphate + potash) than wheat. Wheat in turn consumes roughly 2.2 times as much fertilizer as soybeans.

--From StormX website

Potash Corp. Earnings Shouldn't Peak Until at Least 2011

Michael,

You could have saved a lot of time and got your message through more effectively if you just put all that data in a table or graph.

I hope your multi-year forecast is more or less correct as I own a little POT. 4% increase in demand is below recent history but don't forget that the past demand growth rates were when the price of Potash was much lower. At today's prices of about $1,000 per tonne I think the future growth rate in demand will be less than your forecast but I still own POT because of the limited supply as compared to other commodities.

BTW, do you have any charts you can share with us?

The Agriculture Boom Goes Bust

Has anybody quantified the cost of fertilizer as a % of some unit of a crop's price (Wheat, Corn... any major agriculture commodity)? How about the cost of Potash as a % of fertilizer prices?

I would assume there are a lot of fixed cost that a farmer incurrs regardless of output/yield (land, equipment, facilities/storage plus some fixed number of employees). If I'm right (I have no data to support this) that crop farmers have lots of fixed cost to cover, then the incremental cost to produce incremental crops is insignificant. Any extra crops he can get out of using more/better fertilizers is almost all profit that drops to his bottom line.

Am I wrong?

The Agriculture Boom Goes Bust

Fertilizer companies, especially POT, have been able to cover higher input cost through higher end prices. In my opinion, the focus needs to be on the DEMAND side of the equation.

There seams to be a strong case for growing demand due to the wealth affect of developing nations with large populations. However, the author says:

"High prices are reducing total fertilizer use around the world. We could see a big impact on reduced consumption when the Q2 numbers come out..."

Does this really make sense? Did farmers cut back on fertilizer use in April, May & June? If there were signifcant cutbacks then how POT negotiate very large price increases for current and future deliveries? Something does not add up here. Where is the analysis of the net affect?

Disclosure: long RJA (thinking about buying POT below $200)

Potash Heats Up: $1000 a Tonne?

Does a bear shit in the woods?

Potash Heats Up: $1000 a Tonne?

Groty summed up the POT game well:

"Is $1,000/ton peak pricing? That is the only relevant question."

But what if the price holds for a while, plus or minus 10 - 15%? Won't that turn POT into a nice fat cash cow and they can use it to expand opperations leading to greater future volume & possibly gain market share (assuming management finds acceptable deals)?

Or they could pay out heafty dividends which would support the stock price to some extent.