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Potash Shake-Up Continues to Take Toll

September 24, 2013
POTASH
  
 
 

Agrium Inc. is the latest North American potash producer to cut its sales forecast as the breakup of the world’s largest mrketing bloc for the crop nutrient begins to take its toll.

Agrium, the third-largest North American producer, expects to sell 30 percent less potash in the third quarter and forecast a 64 percent drop in profit from its wholesale fertilizer division, the Calgary-based company said yesterday. U.S.-based Mosaic Co., the second-biggest producer, cut its sales forecast by about 20 percent on Sept. 16.

The potash market has been roiled since OAO Uralkali, the world’s largest producer, announced it had pulled out of an export sales venture with its Belarusian counterpart on July 30. The Russian company said it would boost output and start selling at lower prices, a move that sent shares of fertilizer companies falling.

Potash Corp. of Saskatchewan Inc., North America’s biggest producer and a member of rival export group Canpotex Ltd. with Agrium and Mosaic, won’t be spared the drop in demand, said Peter Prattas, an analyst at Cantor Fitzgerald LP in Toronto.

"They’re all going to hurt equally given the fact that they’re a collected group," Prattas said yesterday in a telephone interview.

 

‘Essentially Paralyzed’

 

Potash Corp. Chief Financial Officer Wayne Brownlee said during a Sept. 18 investor conference in New York that volumes in offshore markets "have been essentially paralyzed." He said today Canpotex’s strategy won’t change because of Uralkali’s intention to focus on increased volumes.

"If we signal to competitors, or to potential competitors, that we will back out of markets then we won’t have a business for a long-term basis," Brownlee said today at a conference in Toronto. "So there is no change in strategy going forward. It will be consistent and always to optimize profitability."

Buyers are holding back, in anticipation that prices will sink, before stocking up on the crop nutrient, said John Hughes, an analyst at Desjardins Securities Inc. in Toronto.

"Why buy today at 400 bucks U.S. a ton potash if the general perspective is we’re going to head to $300 or $350?" Hughes said yesterday by phone.

 

Missing Estimates

 

The change is affecting Uralkali as well, Danila Yakub, a Moscow-based analyst for UBS AG, said in a Sept. 20 report. Russian customs data suggests September exports may be down 40 percent from the average of the prior 12 months, Yakub said.

Agrium, which also produces nitrogen and phosphate fertilizers and is the largest U.S. farm-products retailer, raised its dividend by 50 percent, citing "strength in the long-term agriculture fundamentals." The company also forecast third-quarter wholesale fertilizer sales that were worse than estimated, Hughes said.

"Most were looking for maybe a 15 or 20 percent decline in sales volume, and we’re getting a 25 to 30," he said.

Agrium fell 0.6 percent to C$89 at 11:41 a.m. in Toronto, while Potash Corp. dropped 0.7 percent to C$32.81. Mosaic, based in Plymouth, Minnesota, declined 0.5 percent to $44.50 in New York.

Potash, which helps strengthen plant roots and improve resistance to drought, isn’t traded on public exchanges. Prices for delivery at Vancouver’s port have fallen to $410 a metric ton, 19 percent less than a year earlier, according to data from Green Markets, a fertilizer-industry information provider that is a unit of Bloomberg LP, the parent of Bloomberg News.

 

Lower Prices

 

The average retail potash price in 11 U.S. states has declined 11 percent to $538.93 a ton since the Uralkali breakup, according to data from Green Markets.

Prattas said global prices may decline further.

"In order for volumes to recover, the price does have to come down lower," he said.

The Russia-Belarus marketing group, formerly known as Belarusian Potash Co., may be back together by the end of the year, Hughes said.

Uralkali announced today a unit of China’s sovereign wealth fund traded its Uralkali bonds for shares, giving it a 12.5 percent equity stake in the company.

China is the world’s biggest potash consumer and benefits from lower prices. The move could give it more sway in any future contract negotiations, Kirill Chuyko, head of equity research at BCS Financial Group in Moscow, said by phone.

"We don’t know if there are any additional terms in the agreement between China and Uralkali and its owners," Chuyko said.

A reunification of potash producers in the former Soviet Union doesn’t mean prices will increase, Prattas said. The two companies may agree to keep volumes high and prices low, he said.

"That’s yet to be determined," Prattas said.

 

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RELATED TOPICS: Fertilizer

 
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COMMENTS (4 Comments)

- Cut Bank, MT
both fertilizer and machinery dealers have jacked prices to take advantage of rising grain prices and idiot corn farmers went along with let us produce more. I feel no sorrow for either one.
8:20 PM Oct 7th
 
GEORGE - DOWLING, MI
ya, its a go along, get along deal with them (FB)
9:14 PM Sep 25th
 
FG - cuba, IL
I have talked about this being a rigged monopoly before.

No one seemed to care, particularly the Farm Bureau as long as they could pass the price increases along.
6:21 PM Sep 25th
 
FG - cuba, IL
I have talked about this being a rigged monopoly before.

No one seemed to care, particularly the Farm Bureau as long as they could pass the price increases along.
6:21 PM Sep 25th
 



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