PotashCorp (NYSE:POT) -- Reports Fivefold Volume Increase Over Last Year
PotashCorp (NYSE:POT), the Canadian integrated fertilizer and feed products company with operations in Saskatchewan and New Brunswick, recently reported its new numbers and they are promising. The update shows exactly what Chris Mayer, editor of Agora Financial’s Capital & Crisis newsletter, had been expecting. Farmers are coming back into the market and buying potash once again.
From Mayer’s most recent reader update:
“PotashCorp (NYSE:POT) volumes increased fivefold over a year ago and earnings for the quarter were the second highest in company history. All in all, this was the first quarter of upticks after nearly 18 months of decline. Potash inventories are now 21% below the five-year average, which bode well for more buying. There were many details in Potash’s report, as usual. I particularly enjoy PotashCorp’s conference calls because CEO Bill Doyle has such a command of the issues affecting agricultural markets.
“He reiterated how fertilizer prices don’t bounce around day to day based on commodity prices. Many investors in the fertilizer stocks have focused on the potential bumper U.S. corn crop this year and lackluster grain prices. But the fact remains that current crop prices are still well above average and the economics of fertilizer use are still attractive.
“Doyle also reminded investors not to focus too much on the U.S. There is strong demand for fertilizer from other parts of the world, in particular Asia and South America. Brazil, for example, imported only 83,000 tons in the first quarter of last year. This year, it imported 1.13 million tons in the first quarter. Doyle said that was “typical” of what they are seeing ahead of the June-September demand period.
“While volumes are returning, prices are still down 40% from where they were a year ago. But there are many catalysts that could send prices higher. There is this nugget from David Delany, president of sales for PotashCorp, which has been underreported:
“’When you see China import corn — and I don’t know how many of you have picked up on this, but there is a 115,000-ton corn order from China which just came out yesterday. And there are indications that there is going to be more behind this. We have been waiting for China to import corn for a number of years… If you will recall, China used to be a 15-million-ton corn exporter. So for China to go from being a corn exporter to a corn importer has spectacular consequences for the corn market, for the grain markets, and I’m not sure that that is totally appreciated.’
“This is not a one-off event. China’s farmers can no longer meet domestic demand for corn, which is mainly used as animal feed to support China’s growing dairy, hog and poultry sectors. If we see China start to regularly import corn, which I think is probable, that could be a big catalyst in the grain markets and for fertilizer use.
“Doyle also talked about the number of catalysts out there that could spark potash prices higher:
“‘We’ve got the El Nino problem in Malaysia and Indonesia. Palm oil prices are escalating. That could also be a catalyst. We have got record soybean imports into China, also a potential catalyst. The recognition in the marketplace of tightening supply demand fundamentals of potash that will drive the restocking of the supply chain, when that light goes on, also a potential catalyst. So when you hear that people say that there are no catalysts for the price of potash to improve or change, it just shows a fundamental lack of understanding of all the nuances that are in this marketplace.’
“What about new supply? Doyle went through some of the projects out there, and it seems most won’t move forward because of poor-quality ore bodies and high costs. We need to see a much higher potash price to make these projects work.”
At this point, Mayer is watching the potash market and thinking strategically about how these catalysts will play out for PotashCorp. He goes on to describe that, right now, the company’s large net asset value supports its stock price. Mayer reports in far more detail in the most recent issue of Capital & Crisis which he just released last Friday. Visit the Agora Financial research page to learn more about the newsletter and to sign up if you want to stay updated with his insights.
Also, Chris Mayer will be speaking live at the Agora Financial Investment Symposium in Vancouver. You can read about how to register for the July event here.
[Nothing in this post should be considered personalized investment advice. Agora Financial employees do not receive any type of compensation from companies covered. Investment decisions should be made in consultation with a financial advisor and only after reviewing relevant financial statements.]