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Rising oilseed prices bode well for Potash Corp., Mosaic

Cameron Rowan drives a front loader filled with potash in the Mosaic Potash Colonsay mine in Colonsay, Saskatchewan September 24, 2009.


Rising prices for corn and oilseeds may bring a halt to sliding potash prices, which in recent quarters have hurt the performance of Potash Corp. of Saskatchewan Inc. and other producers.

Drought in Southern Brazil, parts of Argentina and Paraguay is expected to cause the biggest year-over-year decline in global soybean production on record, which is pushing up the price of oilseeds, including canola oil, Canada's second most-valuable crop.

"Some of the pressure on potash prices coming [early]this year is going to be arrested," said Patricia Mohr, vice-president of economics and commodity market specialist at Bank of Nova Scotia.

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The spot price of Canadian potash for overseas markets ended last month at $483 (U.S.) a tonne, up significantly from $375 a year earlier but a long way from the high of $872.50 struck in early 2009, according to Bloomberg data. Global economic concerns have weighed on prices as have tough contract negotiations for the crop nutrient in Asia. In addition, India is reducing its potash subsidy effective April 1 and U.S. dealers have boosted their inventories.

Those dynamics caused both Saskatoon-based Potash Corp. and Mosaic Co. , of Plymouth, Minn., to impose temporary production cuts. Keith Carpenter, agriculture analyst at Canaccord Genuity Corp., notes that while North American potash producers have reduced their output by 34 per cent from a year earlier, inventories remain 34 per cent above their five-year average.

Potash Corp., the world's largest fertilizer producer, gave a disappointing forecast for this quarter and missed the Street's fourth-quarter expectations back in January. But at the same time, chief executive officer Bill Doyle said the setback was temporary and the growing global food shortage would drive sales.

Ms. Mohr's analysis supports his optimism. Potash prices are likely to steady over the next few months and could top $500 a tonne later this year, she said.

The weaker-than-normal supply of oilseeds is already pushing up prices. The U.S. Department of Agriculture says cash prices for soybeans rose by about $1 per bushel last month, pushing toward $13 a bushel.

Richer returns are expected to encourage North American farmers to dedicate more of their acreage to soybeans, canola and even corn, all which demand a high degree of fertilizer to produce good crops, Ms. Mohr said.

In addition, Canadian farmers should see greater opportunity to ship canola to China this year, following that country's decision to relax restrictions and allow domestic crushers to import Canadian canola, she said.

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