Potash price surge could lead to higher food costs for billions

Canada is also home to the world’s largest fertilizer company by capacity—Potash Corporation of Saskatchewan, or Potash Corp.—the target of BHP Billiton’s long-running covetousness.

The U.S. came in at 770,000 tons of potash production in 2015, mostly from New Mexico and Utah, which have a total of seven potash mines. Most of the U.S. potash goes to the fertilizer industry, while small amounts are diverted to the chemical industry. The four mines in New Mexico are controlled by two companies—Intrepid Potash (NYSE:IPI) and Mosaic (NYSE:MOS). In Utah, it’s Intrepid again, Compass Minerals (NYSE:CMP), and Canadian explorer Potash Ridge (TSX:PRK) with its Blawn Mountain project. Potash Ridge’s Valleyfield project in Quebec is projected to produce 40,000 tons of SOP (sulfate of potash) annually, with construction slated to begin later this summer.

The movements among the big potash players make huge market ripples. In 2015, a US$500-million loan deal from the Industrial and Commercial Bank of China and China Construction Bank with Russian potash major Uralkali, effectively gave China greater control over global potash production. Uralkali accounts for about 20 percent of the world’s potash production.

China—a major demand center for potash—now has immense influence in the potash market, and is both a major producer and a major importer because demand is far greater than domestic supply. The Chinese potash contracts that are typically made in February every year—but delayed this year—are a critical annual point for producers.

Not all Potash is Equal: Some Potash is Posh

As Mr Bentinck has noted above, the middle class is growing, and they want higher-quality, healthier food, which means cash crops. This demographic change is leading to a health food revolution for which potash is the primary element. But not all fertilizers are equal in this game.

The two most common forms of fertilizer are MOP (muriate of potash) and SOP (sulfate of potash). Right now, MOP is the most common; but while it’s good for some crops, it’s not good for others, and it can create environments that are detrimental to some crops, primarily due to high levels of chloride.

SOP, on the other hand, is the premium end of potash. It’s the posh potash. It improves both the quality and yield of a crop, while at the same time making them more drought, frost, insect and disease-resistant. It’s been said that SOP also improves the taste of the food by improving its ability to absorb nutrients.

The other problem with MOP today is that the market is temporarily over-supplied and prices have dropped, which has prompted some more junior miners—such as Potash Ridge in Quebec and Utah--to swoop in to take advantage of the opportunity for the less common SOP. Potash Ridge, which is one of the fastest-growing juniors on the posh potash scene, says SOP "continues to be one of the best performing commodities across all sectors, which realized prices in North America exceeding US$880 per ton in the fourth quarter of 2015."

Riding the Cycles: The Potash Catalysts Are Already Visible

Fertilizer demand is set to increase over the long-term. While globally we consumed 35.5 million tons of potash in 2015, the next four years should see this rise to 39.5 million tons.

The catalysts for potash are already clear and present. The grain cycles that affect fertilizer are coming back around now; the long overdue, but now occurring monsoon season in India should relieve several quarters of slumping demand in this major demand venue; a health food boom is increasing demand for the SOP form of potash; long-term global population figures stand starkly against plummeting farmland figures; and major potash production is coming offline in the near-term, making even more room for the juniors to break in.