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Potash Corp. shareholders have to be wondering what else could possibly go wrong. Already beset by the collapse of an eastern European marketing cartel, the company is now faced with plunging corn prices and the potential reduction of U.S. government ethanol subsidies.

Potash Corp. slashed earnings guidance Friday as the effects of a series of disasters – largely out of management's control – become evident in lower profits.

The July breakdown of a pricing agreement between Russian fertilizer producer OAO Uralkali and Belarus-based Belaruskali was the first blow to Potash Corp.'s outlook. OAO Uralkali is now selling potash at discount prices in an effort to gain global market share, depressing revenues for the entire industry.

U.S. corn prices were the next thorn to puncture Potash Corp.'s side. Fertilizer stocks often trade in accordance with the corn commodity price; higher corn prices mean more corn planting, and thus more future demand for fertilizer.

The U.S. corn price has declined 32 per cent over the past year, suggesting weaker future planting seasons and lower demand for fertilizer will follow.

The last and possibly most devastating blow to Potash came Thursday, when the U.S. Environmental Protection Agency (EPA) suggested it may decrease subsidies for corn-produced ethanol.

Reuters reports, "The EPA proposes a 'significant' reduction in the overall renewable fuel requirements to 15.21 billion gallons, far less than the 18.15 billion gallon 2014 target established by law, the documents show. That would reduce the volume of corn-based ethanol to about 800 million gallons less than this year's 13.8 billion gallons, a much larger cut than many industry observers had been expecting."

If the EPA proposal is adopted, U.S. demand for corn and fertilizer would be driven even lower.

Potash Corp. stock has fallen 27 per cent since May but, because earnings expectations are lower, valuation levels are not particularly attractive. The forward price to earnings ratio (more useful than trailing P/E, as profits will certainly be lower going forward because of the commodity price) of 15 times is well above the stock's three year average of 13.2.

Potash Corp. is a great Canadian company producing a vital product for the global food chain. It will undoubtedly recover to previous heights – just not soon.

To see the chart showing Potash Corp's stock price vs U.S. Active Corn Futures on mobile devices, click here:

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