By James Wellstead — Exclusive to Potash Investing NewsDriven by population growth and the demand for increasingly resource-intensive diets, global crops are being increasingly taxed and expanded in order to meet rising demand.
In the wake of Mosaic and PotashCorp's production cuts and mine closures, making that sale on public markets may be a tough road for eventual fertilizer producers. The sudden run up in supply that forced Mosaic and PotashCorp to close mines took some by surprise, including Canpotex CEO Steven Dechka."We had a fall in the fourth quarter as the European crisis started to hit again, people started getting nervous,” Dechka told Reuters last week. As a result, it was “a slower-than-expected...first quarter." A number of potash producer executives have encouraged investors to look beyond short-term fluctuations to long-term shifts in the market. But protracted standoffs between suppliers and farmers in the past have caused problems for producers' fortunes, and the risk of a similar stand-off could still exist this year. Identifying markets Potash markets are a sensitive area and vary depending on the country in question. Chinese and Indian markets are highly politicized in part due to the predominance of farmers across these countries, but are in search of secure supplies. Brazil is deeply dependent on foreign sources to supply its markets, relying on imports for over 90 percent of its annual consumption of about 7.5 MT. Traditionally buying potash on the spot markets, Macpherson noted that Brazil “has a very serious need for supply” and “we believe there are synergies that we are in a position to feed in to.” But a number of other suppliers are also eyeing this perceived opportunity. Bloomberg recently announced that Brazilian Vale SA (NYSE: VALE), the world's second largest mining company, agreed to lease a potash mine owned by Petroleo Brasileiro SA (PETR4) for 30 years in order to set up a fertilizer project worth US $4 billion. Mining juniors Verde Potash (TSXV: NPK) and Rio Verde Minerals (TSX: RVD) both have their sights on supplying the Brazilian market from within, with Verde beginning production in 2014 and Rio's start date yet to be determined. Leading forward, determining which mines are likely to come online in time to grow with the market will depend on both mineral resources and time. Many juniors may be short on both.