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Investing in Falling Potash Prices

Written By Brian Hicks

Posted October 1, 2013

Potash: it sounds a bit like a dish made with potatoes, but it’s actually one of the most sought-after commodities in China and India.

Recently, China bought a stake of a Russian potash company, giving the major buyer of the commodity access to a major seller. But the company is involved in a dispute with its partner in Belarus, and the combination of events has led to a drop in potash prices.

potashWhat is Potash?

Potash is a water-soluble fertilizer containing potassium. Farmers use it a lot to grow strong, abundant plants, especially in dry regions of the world, because it retains water. Potash is essential in the successful growth of crops, which is the main source of revenue for some people and countries.

As you can imagine, potash is a hot commodity, and it’s just become hotter.

The Russian company Uralkali has been in the spotlight a lot lately. It is part of one of the biggest groups of potash producers in the world – Belarus Potash Co. Its competition is a North American group, which includes Canadian company Potash Corp. of Saskatchewan.

Up until recently, the two groups made up two-thirds of the potash market and kept their prices in line with one another. Many people speculated that they were running cartels because of it, but they both continue to deny that claim.

What’s Changing for the Potash Groups

While the two groups have been running side by side for a while, they are diverging down two different paths now. China Investment Corp (CIC) just bought a 12.5 percent stake in Uralkali. It is now seated on the board, and it has some control over potash prices.

China is one the biggest importers of potash, so now that it owns some of the potash market, it will want prices to decline. Lower prices will mean the nation can afford to grow more crops, which in turn means it will have more food to sell. And when there’s oversupply of food, it becomes cheaper, which means more consumers will buy it.

This sounds like good news, right? Sure, if you are part of the Russian or China potash company – but not if you are part of the North American group. The Canadian potash company now has to compete with Uralkali’s prices. And since Belarus Potash Co. is a main supplier of China and India – the world largest importers – the North American group is losing on that as well. Just recently, Indian Potash Ltd. signed a 12% discount contract with Uralkali.

When there is a swing in potash prices, crops are affected – corn and sugar in particular. Uralkali only has 20 percent of that market, but it still plays a role in how North American potash producers make their money.

Since the summer, North American companies such as PotashCorp, Mosaic, and Agrium have seen disappointing share prices. The only way these companies are going to be able to survive against the Russian potash market is to lower their prices to make their product more attractive to farmers on this side of the world. If they don’t, many agriculture companies will start importing from Russia – just like China and India have been doing.

Investing in the Potash Market

Agriculture companies want to take advantage of these dropping potash prices as much as possible. And you can invest in the market in two ways to turn out decent profits.

Potash mining companies: With the increase in demand for potash due to lower pricing, mining companies will be busy. This is the time to invest in the stocks of these companies.

Agriculture companies: Agricultural companies around the world, particularly those producing corn and sugar, will be using potash to increase production. The more crops they produce, the more they will sell and profit, which means a bigger return for you.

Look to Russian for the potash mining companies because they are the ones that are set to take off soon with exporting. For agriculture companies, China and India are big producers, so look there first, since they are the ones that are positioning themselves to buy an abundance of potash to increase their food production.


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