Potash's Potential: Fertile Returns
Take a gander at the list of the most popular commodities and bring out a magnifying glass to look up potash. It's on the list even if it's very far down, offering the chance of growth for investors who pay close attention to the fertilizer industry. While that's not as easy as paying attention to the gold-mining or oil-drilling industries, some news events do make big enough headlines to briefly shine the spotlight on potash. The Mosaic Company released the biggest bombshell of the year for potash last week with the announcement that they would limit their output of potash in order to keep prices of fertilizer high, ensuring that the commodity prices rise in turn. After many years without much hope on the horizon for potash, it's more than welcome news -- it's a life-saver.
The Science of Things
Take a gander at the nutrition information on a carton of orange juice the next time you have breakfast. Almost no other processed foods have enough quantities of potassium to list the percentage, but citrus juices contain a large amount of the salt, a substance similar to sodium that functions as a trigger for muscle movement. Too little potassium weakens the body; too much results in a heart attack. What's true for humans is, to an extent, true for many other living things, meaning that the right quantity of potassium makes crops grow to ideal sizes. Indeed, potassium is far more important to plants than it is to us: they require almost as much potassium for fertilizer as they do nitrogen and phosphorus, while animal life relies far more on carbon, sodium, and oxygen. Potash represents the most abundant form of potassium, providing the basis for fertilizers that grind up the rock crystals in order to provide industrial-scale nutrition for crop development.
A Brief History
About 500 years ago, the Dutch discovered the potential for combining potash salts with wood ash in a giant pot (giving the substance its name) and then sprinkling it over seeds, just prior to discovering how to steal Spanish galleons full of gold sailing across the Atlantic. Industrial farming gave rise to potash as a commodity during the 20th century; as such, potash can be indirectly attributed with boosting the global population from just 2 billion in 1900 to some 6.5 billion by 2000 as food abundance allowed for the greatest population surge in the history of human civilization. Nor did potash stop at 2000: global demand for food as well as food prices have risen faster than the worldwide average for inflation since 2000 as we add a new population of 75 million persons to the globe each year. Today, China consumes the largest amount of potash, followed by the United States and Brazil. While Brazil is rich in oil, gold, and iron, they have to import most of their potash since the moisture of the Amazon river basin washes salts out of the other-wise fertile soil. Worldwide, about thirty million tons of potash change hands each year, led by the Great White North. Canada digs up more potash than any other nation because the massive glaciers that rolled across their plains fifty thousand years ago compacted the potassium in the soil into crystalline form.
While potash enjoys its day in the sun as a source of fertilizer and global food supply, it hasn't had as much success on the open market of late. Prices peaked in 2009, list most other commodities on the market, but potash didn't get a boost from the 2011 commodity boom and has hovered around $300 per ton for the last 18 months with little change. Even as major nations like Brazil require steady streams of potash, many have built up reserves on cheap price tags that further limit mining companies in the effort to shift inventory and open up fresh projects. The most recent swing of no net gain put enough pressure on Mosaic Co. to announce a reduction in output for 2016. The US company announced that their Canadian potash mining holdings in Saskatchewan would fall onto the chopping block. CEO Joc O'Rourke announced they would cut production in order to meet the falling demand while also "maintaining their discipline" to avoid opening up new mines that cannot operate at a profit. The announcement by O'Rourke projected that the company had not anticipated potash falling into the lower quartile of the announced range ($280 to $320) for 2015, making their board of directors look for ways to cut costs and compete on a flush market. As Mosaic remains the world's largest producer of potash, their move will dictate the price of these potassium salts far more than any other actor on the commodities market.
- The Takeaway: while not as sexy a commodity as platinum or natural gas, potash represents a very strong investment opportunity due to its low profile and its high risk of supply shortages. Investors heading into 2016 with potash in their portfolio will benefit from the upward swing as Mosaic limits the global availability of potash and drives prices back up. Potash is also perfect for conservative investors, since it has had amazingly little volatility in the past year of trading and remains in constant demand the world around.
- Investors looking to maximize value and invest when the salts hit their lowest point may find themselves waiting for a while longer than they prefer. The metal hasn't had a variance of more than $5 in either direction from its starting price in all of 2015. There's little point in waiting around for potash to sink lower, since it likely will not before it starts a recovery on the heels of the Mosaic decision.