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Commodities don’t get better than this...
In the beginning, man was a hunter and gatherer. Later on, he realized that by planting seeds inthe ground he could grow what he wanted to eat. And so the first agriculturist came on the scene.When these agriculturists settled together on fertile grounds and used the nearby water to growcrops, civilizations emerged.From this humble beginning, man became industrious and soon formed towns and cities. As timepassed by, few were focusing on agriculture. But that didn’t stop anyone from eating. The basichuman need for food grew. Man was forced to produce more from less and the only way thatcould be achieved was by using fertilizers such as potash.The story doesn’t end here. New discoveries were made – and the food that he ate could beturned into a power house of energy – bio-fuel. So when (not if) the oil reserves of the worldstart to disappear and the exploration and production of oil and gas diminishes, be sure that ourman will turn to other alternative forms of energy. But for the time being, let’s focus on how onecompany is helping not just feed mouths but drive cities as well.
Potash Corporation of Saskatchewan Inc. (POT)
is the world’slargest fertilizer producer and is benefiting from the key trendmentioned above. There is an increasing demand for fertilizers fromthe emerging markets which still focus on agrarian based economies. Being the largest potashmining and processing company with 22% of the world’s potash capacity and 75% of the world’ssurplus capacity, this Canadian blue chip can exercise serious pricing pressure as a monopoly.Today, the buzzword is efficiency, that is produce more and more with less and less – inagriculture and sometimes banking – the term ‘yield’ may ring a bell. As the world’s populationexplodes – there are more mouths to feed. Thanks to the limited acreage of arable land (land thatcan be cultivated), farmers are now forced to produce two or three fold from their small patches.This can only be achieved with high yield fertilizers.In short, we have the opportunity to invest in an anti-recessionary industry, where future demandis driven by an increasing world population and a decreasing square footage of arable land percapita.In addition to the use of fertilizers for growing starch based items, such as grains and vegetables,it is also used to feed the live stock that forms a great part of our protein-based diets. Either way,fertilizers are a must – veg or non-veg.
 JPMartin
By Jose Paul Martinwww.jpmartin.com
 
© Copyright JPMartin 2008. All Rights Reserved.-071115- Page 1 of 6
 
A bit of chemistry and periodic tables: there are three major types of fertilizer – nitrogen (N),phosphate (P) and potash (K), together these are commonly called NPK fertilizers. And POTpractically has a near monopoly on these precious commodities.These fertilizers are basically derived from natural resources. Potash is mined from undergrounddeposits left behind when giant seas evaporated millions of years ago. Whilst, phosphate isderived from fossil remains and mined from beds of phosphate rock. Both these elements arescarce. Nitrogen on the other hand is made from organic waste material.Over time, soil loses its nutrients and needs replenishing to operate at its most efficient level.Potash not only protects the environment and groundwater quality of the soil but also helps toimprove a plant’s disease resistance, winter hardiness and pest tolerance, as well as its ability toefficiently process water, nitrogen and other nutrients. The use of potash ultimately increases thecrop yield that can be sold, and improves the efficiency of fertilizer nitrogen. In fact, manypeople do not realize that without fertilizer, production of food, feed and fiber would drop byone-third or more.
The Company
Headquartered in Saskatoon, Canada, POT went public on the Toronto and New York stock exchanges in 1989. It produces all three major kinds of fertilizer: potash in Canada, phosphateand feed supplements in the U.S. and Brazil, and nitrogen in the U.S. and Trinidad. Eachbusiness segment contributes one-third of its total sales.In addition to its internal growth strategies, POT used its strong cash flow to invest in areas thatwould further enhance its long-term value and international advantages. Over the years, with astring of strategic acquisitions and capacity expansions, the company has become a majorsuccess. The last year was a spectacular year of growth, and POT believes it can continue thispace for years to come. Its investments include 32% in Sociedad Quimica y Minera de Chile S.Ain Chile, 28% of Arab Potash Company in Jordan, 10% of Israel Chemicals Ltd. in Israel and20% of Sinofert Holdings Limited, the largest importer and largest integrated distributor of fertilizer products in China.Today, POT is the number-one potash mining and processing company with 13.1 million tons of output or 22% of the world’s capacity and number-three phosphate fertilizer producer with 2.4million tons of output or 6% of the world’s capacity. Nearly 95% of the commercially producedpotash is used in agriculture. The remaining 5% is used for industrial and manufacturingpurposes.
The Demand
Wheat, rice, maize and other cereal crops are staples in the diets of humans and animals andconsume roughly 60% of the world’s fertilizer. Of the major crops, corn is one of the most
 JPMartin
By Jose Paul Martinwww.jpmartin.com
 
© Copyright JPMartin 2008. All Rights Reserved.-071115- Page 2 of 6
 
important and is the largest user of potash. Demand for potash is about to heat up even more.According to the World Trade Organization, within the next 15 years, urbanization is going to eatup 40% of the world’s existing farmland, add to that another billion mouths to feed and the onlyprotection from global food shortages is potash fertilizer. The demand is so huge that industryinsider’s are calling potash the “Commodity of the Decade” predicting that this fertilizer is aboutto become more profitable than oil! Let’s examine where this demand is going to come from.Almost 80% of the world’s potash production is traded across borders. Canada is the largestpotash-producing region, while China is the second-largest importing country after India.
China’s Hungry!
“The size of the potash market in China has more than tripled since the early ‘90s,”according to Jay Fredericks, director of mineral policy for Saskatchewan Industry andResources.China is currently one of the fastest growing economies in the world, and with such tremendousgrowth comes a new set of problems. As more factories and skyscrapers dominate the Chineselandscape, less and less arable land has become available. In short, in spite of the country’stechnology advancements, massive exports - Chinese are in a deep trouble if they can’t find anefficient and effective way to counter their population growth, less land per capita, economicgrowth and demand for food.With fast growing economies, consumers expect better quality food. This means a diet with moreprotein (primarily from meat) requires additional grain to feed more animals. As a result, grainshave joined meat, coal and steel as commodities that China consumes more of than any othercountry. In fact, the Chinese gobbled up 382 million tons of wheat last year, beating U.S. demandby more than 100 million tons. Among the big three grains that are consumed and still have alarge production gap – wheat, rice and corn – have topped the list, all requiring massive amountsof fertilizer.Although China has its own production and export of corn, with the increasing demand – sooneror later, China will soon have to begin importing corn, which should boost both world cornproduction and prices – further driving up potash demand.With the demand for grains soaring out of control, it appears that China is already in a crisis. Thecountry consumes almost twice as much fertilizer as the U.S. (over 19 million tons) but stillcannot nearly satisfy its needs. This year’s shortfall is estimated to reach more than 8.8 millionmetric tons, all at an estimated cost of $1.58 billion. Only a handful of companies in the worldare capable of producing that much fertilizer on demand. And with the supply issues from POT’snearest competitor in Russia and a guaranteed contract to provide 30% of China’s potash
 JPMartin
By Jose Paul Martinwww.jpmartin.com
 
© Copyright JPMartin 2008. All Rights Reserved.-071115- Page 3 of 6
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