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Potash price surge could lead to higher food costs for billions

By James Stafford - posted Tuesday, 5 July 2016

Remember—grain crops are cyclical, so buying when they are down is when the big investors make all their money. Just because corn and other key crops that rely on potash have been down, adversely affecting fertilizer revenues—doesn’t mean they’re out. Corn has many booms and busts; buy on the bust, right before the next cycle boom.

One of the biggest immediate-term catalysts will be the planned moves by giant Potash Corp., it’s Canadian competitor Agrium (NYSE:AGU) and Mosaic to take potash production offline in order to rebalance the supply side of the market—something everyone’s been trying to get OPEC to do with oil to no avail. This means that in the next few months we should see potash prices recover, so the window to get in on the downside here is only open a crack.

Image Source : https://oilprice.com/images/tinymce/2016/Pash3.png

The last great cycle for potash was 2004-2008, but prices for MOP have dropped 60 percent since then, while prices for SOP have doubled since then.

Image Source : https://oilprice.com/images/tinymce/2016/Pash2.png

Image Source : https://oilprice.com/images/tinymce/2016/Pash1.jpg

While MOP is experiencing a glut right now that could soon be rebalanced, supply for SOP is tight, making the margins for SOP increasingly attractive, and the juniors breaking into a high-reward versus risk bargain.

"The global SOP market appears to be under-supplied, with current tightness of the market demonstrating demand for additional global capacity outside China," according to Neil Fleishman, Director of Research for Green Markets.

To Re-Cap: This is Why We Like Potash

There is massive opportunity here in the uncertainty of this market, for which the fundamentals absolutely must re-balance in the medium-term.

And while the MOP fundamentals might take a bit longer to fully rebalance as the global supply-demand picture recovers, the premium-priced posh potash, SOP, is the emerging darling that gives us cause to look more bullishly at the break-out juniors here.