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An interior view of the storage warehouse at Nutrien's Cory potash mine near Saskatoon, Sask., on Aug. 12, 2019.Nayan Sthankiya/Reuters

Many analysts are convinced that the blistering rally in the share price of Saskatoon-based Nutrien Ltd., NTR-T the world’s largest potash producer, has further to run – even if there is a resolution to Russia’s invasion of Ukraine.

Jacob Bout, at CIBC World Markets, is the latest analyst to ratchet up his enthusiasm for the stock.

He raised his target price (or where he sees the stock trading within 12 months) by 35 per cent this week, to US$120, which lines up with targets from analysts at RBC Dominion Securities and BMO Capital Markets.

The rationale: The typical threats to commodity rallies – supply rises as producers ramp-up output; and demand falls as consumers recoil from soaring prices – will not hurt the fundamentally bullish underpinnings for the fertilizer market.

“North American producers should benefit from strong pricing, while incrementally ramping up production levels to the extent possible,” Mr. Bout said in a note.

It’s a persuasive take for anyone who missed the rally in fertilizer stocks or is wondering whether the impressive gains will hold, given the volatile nature of most commodities.

Nutrien’s share price has soared 38 per cent over the past month, making it one of the top performers within the S&P/TSX Composite Index.

The gains come as Western sanctions against Russia have driven skyward a huge array of commodity prices, from crude oil and natural gas, to wheat and copper.

Russia and Belarus, which is also subject to sanctions, together control about 40 per cent of the global supply of potash, Nutrien’s mainstay. Uncertainty over exports from these two countries has driven global fertilizer prices, in some cases, to record highs.

The decision to stick with a hot stock comes with risks, of course. In particular, Western fertilizer producers can increase production and a resolution to the war in Ukraine could relax sanctions, potentially easing supply concerns and pushing down fertilizer prices.

But analysts expect that these risks aren’t enough to hold back Nutrien’s share price, even over the longer term, for a number of reasons.

For one, the supply of fertilizer will likely remain diminished regardless of the geopolitical backdrop.

Belarus lost access to Lithuanian ports on Feb. 1 – weeks before Russia invaded Ukraine – hampering the landlocked country’s ability to export 90 per cent of its potash. Access to the ports is unlikely to be reinstated if Russia calls off its invasion, given that sanctions against Belarus relate to its crackdown on protesters following a disputed presidential election last year.

What’s more, Mr. Bout expects that the geopolitical turmoil will push global buyers to shy away from Eastern Europe and embrace more stable North American producers, suggesting that exports from Belarus and Russia will remain diminished regardless of whether the war ends.

Can Nutrien fill the gap? The company announced last week that it will increase its potash production by nearly one million tonnes in the second half of the year, bringing output to a total of 15 million tonnes.

But analysts said that the increase can’t make up for the 13 million tonnes at risk from curtailed exports from Russia and Belarus, even if some of this potash makes its way to India or China.

“The scale of these potential losses is almost unfathomable, in our view, with little-to-no ability to backfill this cavernous gap,” Steve Hansen, an analyst at Raymond James, said in a note last week.

Strong demand for fertilizer should also support Nutrien’s share price.

Robust crop prices give farmers an incentive to use fertilizer to increase yields – and crop prices are soaring. U.S. corn futures are near 10-year highs and wheat futures have risen more than 40 per cent since the start of February.

In some parts of the world, such as Brazil, higher fertilizer prices are pushing farmers to cut back on use. However, Ben Isaacson, an analyst at Bank of Nova Scotia, noted this week that Nutrien’s chief executive officer has seen no so-called demand destruction yet.

And Mr. Bout said that profits generated by North American fertilizer producers get a bigger lift from higher prices than from greater sales volume. In any case, he added, supply lost from Eastern Europe producers is more important than volume lost to demand destruction.

That, he believes, makes Nutrien look like a solid bet in an uncertain world.

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