Stock markets may be shaky and North American economies sluggish, but one sector is booming and showing no signs of slowing down – farm fertilizer.
Three of the world's largest fertilizer companies – Agrium Ltd., Potash Corp. of Saskatchewan Inc. and Mosaic Co. – have all reported record profits and bullish outlooks as farmers around the world scramble to take advantage of rising prices for almost every crop.
Those profits are expected to go even higher mainly because the supply of one key crop nutrient – potash – is running so tight there may not be enough of it to meet global demand. Potash supply got even tighter on Wednesday with news that India, one of the world's largest users, has signed a contract to buy 700,000 tonnes later this year from Canpotex Ltd., the Canadian-based marketing arm of the three fertilizer makers. India had been holding out for months hoping for a steep discount, but it ended up paying about the same as another major buyer, China.
"Now that India has joined the foray, no new significant capacity is expected for several months, and potash inventories are very low, there may not be enough supply to satisfy all the demand, and [potash] prices, we expect, will rise even further," Richard Kelertas, an analyst at Dundee Securities Ltd., said in a research note.
Potash prices have risen to about $550 (U.S.) a tonne, still far below the record levels reached in 2008 but up about 20 per cent from last year. Canpotex and other potash suppliers have also successfully pushed India and China to sign shorter contracts, opening the door to further price increases. Demand for potash and other fertilizers is also growing in many other countries especially across Asia.
"Over the 30 years of my career in agriculture, the visibility, understanding and appreciation for what this industry provides to the world has increased dramatically," Mosaic chief executive officer Jim Prokopanko said on a conference call with analysts last month after reporting a $649.2-million quarterly profit, up 64 per cent from the same period a year earlier.
Last month, Potash Corp. posted a 75-per-cent increase in its second-quarter profit to $840-million.
On Wednesday, Calgary-based Agrium announced a $718-million second quarter profit, up 40 per cent from the same period last year. Sales also jumped 40 per cent to $6.19-billion.
"I am able to report to you to that Agrium delivered our best quarterly earnings in our history," CEO Mike Wilson told analysts on a conference call. "This illustrates how serious growers are globally about maximizing [crop] yields."
All of the company results were better than most analysts expected, in part because prices for some agricultural commodities had been falling in recent weeks. That was due largely to record planting by farmers, particularly corn farmers in the United States who were expected to produce one of the largest crops in history this year. But a wet spring and hot July have weakened those expectations and corn prices have now moved back above $7 a bushel, or roughly 70 per cent higher than a year ago. Even if farmers do pull in a massive harvest, the U.S. Department of Agriculture says demand for corn is close to an all-time high and supplies will be extremely tight.
Corn is a key crop for fertilizer companies because it typically requires many nutrients. It is also by far the most valuable crop grown in the world and helps set the price of many other commodities, including soybeans, wheat and canola.
"The fundamentals for agriculture and crop input markets are robust today and have room to strengthen even further," Mr. Wilson said.