Potash still at record highs though producers aren't

Potash may not generate as much excitement as gold or oil, but in an era when market prices for everything pumped, dug or grown have fallen off a cliff, potash values are still hitting record highs.

Too bad that economic good fortune hasn't filtered down tothe stock prices of companies that actually produce and sell the potassium-based fertilizer.

Potash Corp. of Saskatchewan, a driver of the super-charged provincial economy in early 2008, has seen its share price fall bymore than 60 per cent from its 52-week high.

Mosaic Co., a Minnesota fertilizer maker with extensive operations in Canada, is in even worse shape, off almost 80 per cent fromits year-high.

The story is the same for other players:

• Potash One, a Canadian company which is looking for new raw material mines, off 80 per cent;
• Intrepid Potash, a big U.S. producer and one of the hot initial public offerings of the last year, down 74 per cent;
• Athabasca Potash Inc., another fertilizer diviner, down 86 per cent;
• U.S.-based Bunge Ltd., a 64 per cent loser from its 52-week peak, and;
• Terra Nitrogen Co., one American fertilizer producer that investors believed remain above the equity muck, was down by a lower amount, but still a 40 per cent loser compared to its year-high.

Of course, with North American equity markets get smacked down in a global recession, what happened to fertilizer stocks in recent months could be said for many issuers.

More food, more fertilizer

The difference is that the underlying price for potashhas remained high throughout much of 2008.

Scotiabank economist Patricia Mohr, who tracks commodity prices closely, said currentlypurchaserspay$872.50 US per tonne of potash at the port of Vancouver.

"It is at a record high," she said.

Potash prices,which are not set bycommodity exchanges but through contracts,havesoared inrecentyears.

What was once a commodity worth about $200 a tonne is now expected to fetch $1,500by2020.

The explanation for this jump is the same reason food prices jumpedin 2007 and into 2008 India and China.

As national incomes rose, the populations in these emerging market heavyweights started demanding more food and farmers began growing more crops to satisfy these needs.

Overall, agricultural analystspredicta global population hitting $10 billion by 2050 and developing economies expanding at nine to 10 per centclip annually as the major factors driving increased food demand and higher fertilizer use.

Potash companies rising

The rising value of potash has been reflected in the revenue and profits of potash producers.

Potash Corp., for instance,saw potash sales hit$932 million for the three months ended December 31, 2008. That level was almost twice as much as the $479 million the company posted for the same quarter one year earlier.

Sales of Potash Corp.'s two other agricultural commodities, nitrogen and phosphate, didn't perform nearly as well.

Phosphate sales rose marginally, up 3.2 per cent comparing the December 2008 quarter with the same period a year earlier.

Nitrogen revenue actually dropped in the quarter, down $30 million.

Scotiabank's Mohr said nitrogen and phosphate differ from potash in that they are used to growdifferent crops by different countries.

Those prices have not held their buoyancyto the same extentas potash values.

Diammonium phosphate, or DAP, a proxy for nitrogen, currently sells for approximately $330 US a metric tonne in Tampa, Florida. That price is almost the same as the value for DAP back in 2007.

And that's the rub for businesses like Potash Corp.: as prices for nitrogen and phosphate drop, investors tend to anticipate a similar crunching ofpotash prices as well.

In addition,the global economic downturn and the inability of small farmers to get credit has cut fertilizer demand in the winter.

"The buyers just aren't in the market," Mohr said.

In the past, potash producers would have panicked and slashed prices to keep their piece of the agricultural market.

Nowadays, however, the five major potash producing countries generally reignin output to deal with slumping markets.

Potash Corp. has already announced plans to chop its potash through-put by two million tonnes in 2009.

Indeed, the company figures that total demand for the commoditywill languisharound nine million tonnes, essentially flat, for 2009.

Producers, however,are still looking to push upprices, especially asthe world economy improves in the second half of the year.

Soon, the Belarusian Potash Company, a joint venture between two potash producers in Belarus and Russia, will start to negotiatewith China for a$200 a tonnehike inpotash prices.

China already receives potash at a substantial discount to other buyers and will still be getting a bit of a price break even with these higher prices, experts said,