What is the Price of Potash?
July 13, 2009
There was a rumored shipment of potash negotiated last Thursday (July,09/09). Supposedly a shipment of some 850,000 tons from a minor producer in Russia was sold for $460/ton and delivered to a port in India.The reason I am bringing this forward is that it stinks. I don’t mean it physically smells, I mean it carries the stench of some form of collusion or even corruption. The company involved Silvinet is the smaller of the few companies in Russia that produce potash. This also makes it a relatively minor player in the world of potash. It supposedly bid for this contract $160.00 under the current prevailing price being negotiated for Chinese and Indian delivery and it is also more than $200.00 under the current spot price for the commodity. This would be like Husky selling gasoline at the pump in Western Canada at $.75/lire while Chevron, Esso, and the rest are still charging $107./litre as is the case this morning in Vancouver. It is possible but I don’t remember it ever happening.
My inclination is to believe that if this is true that the broader story is much more complex. I don’t usually trust this type of story from what is widely regarded as one of the top most corrupt countries in the world. I have seen this type of disparity in the past. It used to regularly occur in the grain and precious metals markets when the Russians didn’t need to disclose their activities. One of the most recent was the huge squeeze in the Palladium market a few years back when they held back supply and drove the price to over $1000.00/ounce. I saw it many years ago when the wheat crop went from a disaster in the Ukraine (pre Glasnost) that became a bumper crop after the price of wheat soared.
If this story holds up, look for the major producers to hold back on any contract with the Chinese and Indian governments and simply supply the spot market until supplies become so tight that a new contract is negotiated at a fair ($625+) price for all concerned.
Ritch Wigham
Mackie Research Capital Corporation (MRC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRC website please understand that it is independent from MRC and that MRC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRC.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital (”MRC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.
The need for fertilizer and Potash One
June 22, 2009
Part 3 of 3: The need for fertilizer and Potash One
If you read the report that I wrote earlier you may have been struck by the numbers that I listed for the effect of fertilizer on crops as published from long term studies done at various universities in North America. With yields improving as much as 40 or 50% in some cases for corn and wheat it becomes pretty clear quickly how important it is to fertilize your crop. As the available arable land world wide, gets repeatedly abused to produce more and more feedstuffs, the need to fertilize will only become more critical. This fact isn’t going to go away, regardless of the climatic conditions that we encounter in the years to come.
As with Uranium there is only one jurisdiction literally in the world that I would trust to invest my money in the efficacy of developing a potash (fertilizer) deposit. There are very few choices currently available for this. That jurisdiction is Saskatchewan. A lovely agrarian province in what is geographically the center of Canada. They have currently the largest known deposits of potash in the world. They have been producing it on volume, more efficiently, and at a lower cost for longer, than anyone anywhere else. They also are friendlier to the development of both Uranium and potash than anywhere else in the world, at this time.
The choices are limited for good projects anywhere in the world, they are reduced to just two if you limit yourself to Saskatchewan. They are Athabasca Potash and Potash One.
I know which one I prefer. I could make the comparison here, but it frankly would be of no benefit to my business. What I can tell you is that now is the time to discuss all things agricultural. We are in the post seeding lull that I told you about a couple of weeks ago. We have only a few weeks (or less) to take the action to profit from what will be a very bullish move in not only the large potash companies (Potash Corp. Agrium, Mosaic etal) but the whole agricultural sector.
Talk to you soon with more updates,
Ritch Wigham
Mackie Research Capital Corporation (MRC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRC website please understand that it is independent from MRC and that MRC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRC.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital (”MRC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.
Agriculture: Questioning Crop Outcomes in ’09
June 3, 2009
Part 1 of 3
It is update time:
There are three key areas that I want to bring up from the discussions I have set forth recently:
- We need to talk seriously about agriculture now that the crop has finally been planted.
- The oil and gas sector and what is to come from here.
- Potash One, why this junior is on track for bigger and better.
Starting With the agricultural sector, we find that our concerns with this years crop outcome is being reflected in the market place already. Follow this link to see a related wheat chart.
As you can see from this chart of the “new crop” December wheat, we continue to have very strong price appreciation. This is also true for ‘beans and corn. I cannot strongly enough re-iterate my concerns with the eventual outcome of this years crop. If you use only a small percentage of your liquid assets in one speculative trade this year it should be in the Ag complex. So far it has been shaping up as I had feared with much cooler than normal weather in the growing areas and much wetter in some of the areas (Illinois) that are critical to the overall yield come harvest time. Suffice it to say that according to the latest USDA, NASS planting progress report of June 1st all of our primary food/feed crops(Wheat,corn,soybeans) are well behind their five year planting and germinating averages, with some areas quickly running out of the precious time it takes to either switch crops or to re-seed if that is necessary. This situation is not dissimilar to last year, but remember that it took near perfect growing conditions to fix the crop after the awe full start that it had. I am very skeptical that two perfect growing seasons in a row can be anticipated after the much worse than normal start that we have had again.
At this point the only real questions that remain for seeding is how much of the corn and wheat will be switched to soybeans. To me soybeans can very quickly become a default crop for a lot of growers as you can plant them later than corn, they don’t require the same levels of fertilization as wheat or corn and the tightness of supply that is going to be available from Argentina and Brazil seems to keep getting smaller, which has been what has caused a lot of the price support for the bean complex. The Chinese would normally have switched to import SA(South American) beans by now but appear to still have an import appetite for American beans.
All of which will probably result in a number of millions of acres being switched to beans from corn and wheat. Some estimates have this as high as three million acres. I look for any surprises hear to be on the side of the switch and could see this number even higher.
Look for part two tomorrow on the crude. (Update: Crude oil report now available.)
Mackie Research Capital Corporation (MRC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRC website please understand that it is independent from MRC and that MRC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRC.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital (”MRC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.
Potash Junior Gets Boost
May 14, 2009
We have been involved with this junior for some time.
Contact me and find out why this is such a special opportunity and should be considered for your portfolio.
Mackie Research Capital Corporation (MRC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRC website please understand that it is independent from MRC and that MRC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRC.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital (”MRC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.
Why 2009 is the year to profit in Agriculture
May 13, 2009
In the fields of North America, this summers growing season may create one of this decades great opportunities for investment, or if you will speculation , with stunning dynamic upside with a very limited and modest downside risk.
Not in many years have as many of the significant crop reliant inputs been in danger of coming together and culminating at the end of the summer to conspire against a successful completion to the growing season in North America. This spring (to use a mush hackneyed expression) there is the potential for the “perfect storm ” to develop, that could reduce the yields of all the major crops produced by our agricultural sector.
Last year we had what was a very good end result to the season with a good growing summer season and a very efficient fall harvest for most of the growing areas both up North here in Canada and more importantly in almost all of the U.S. After surging grain prices in 2007 where we saw record prices for all of the major food and feed grains world wide 2008 was sufficiently successful to reverse prices back to a more normal level. This scenario played out on a world wide basis with the hugely(I cannot emphasize enough the importance) influential rice crop having soared in price so high in 2007 as to influence many countries and international bodies to declare emergencies in stockpiles and carry-over supplies. As nearly disastrous as 2007 was I feel 2009 may simply pick up where it left off with the reprieve of 2008.
With our very short memories, I am afraid that most have forgotten how quick and easy it was for world grain prices to double and then triple in a very short time. With the hue and cry against ethanol from corn production blamed for the price increase in Mexico of the staple tortillas to the panic in Asia (Thailand, Indonesia, Burma et al) to curtail exports for fear of running short domestically. 2008 let the world back off the hook with a successful crop in most growing regions.
World food prices like all markets are dictated by supply and demand. Simply put(to save a great deal of your time explaining) the line between the two is very fine. One of the first things that I learned many years ago about wheat was that a paltry 3% reduction in the world(I emphasize”WORLD”) crop resulted in an increase of about$1.00/bushell. Doesn’t seem like much of a reduction to create that kind of movement, but that is the kind of fine balance that we have achieved internationally in our grain trade. I can only suggest that, that balance if anything is more defined today with approximately 40% more people consuming now, than when I first realized how tight the grain markets can be. The best recent example of this is probably the price increase in corn in 2007 when the diverting of corn for fuel (ethanol) in the U.S. was blamed for cost increases and shortages where corn for food is subsidized by the government in Mexico.
In the years of 2004/2005, 12% of the corn crop was diverted to ethanol in the U.S, it is projected that by 2014/2015 that 23% of the crop will be diverted (USDA baseline projection) . I personally don’t believe that this will occur mostly because we simply can’t afford this foolishness but what I do know is what ever that percentage ends up being, it will have a negative effect(higher) on corn prices. Remember also that the U.S. government pays the U.S. grower to grow corn for this purpose in the form of subsidies. What happens if the crop declines by 5% due to say, weather problems?
FERTILIZER
In North America, in excess of 86% of the wheat crop is fertilized, in excess of 96% of the corn crop is fertilized. About 20% of the bean crop is fertilized. The reason for this is that corn and wheat need added nitrogen in the depleted soils where they are grown because as the plants mature they”strip” the soil of it’s nutrients, soybeans/canola are of much lower impact. I mention this because last year going forward into this growing season there has been a 30% reduction in fertilizer sales in North America. This is because of tight credit last fall in the U.S., lower crop prices at the end of harvest, and high fertilizer costs. The problem with fertilizer, specifically, nitrogen is that it needs to be spread at the end of the previous growing season and cannot be made up for after you have planted the new crop for the most part. Depending on which study you want to quote, (this is one of the better ones published by the Potash and Phosphate Institute) up to 50% of a crops yield can be ascribed to fertilizer use. A more reasonable and conservative estimate would 30%. Now this doesn’t mean that the crops this year will have 30% lower yields but it certainly does mean that 30% of the 30% that wasn’t fertilized will have some what lower yields other than what would be otherwise expected. AND that’s only if this crop year is normal or better than normal. So somewhere along the line there will be less wheat and corn than last year on a bushels/acre basis.
Worldwide this is also a problem in China (the worlds largest wheat grower) and the rest of Asia where apparently there has been a reduction in fertilizer use for rice as well. We haven’t even covered Eastern Europe where the value of the currencies to purchase imported Agricultural inputs has all but collapsed. The Ukrainian crop/Russian crops are critical to northern Europe for both human feedstuffs as well as maybe even more importantly for feed grains for livestock, ranging from chickens to cattle.
WEATHER and GROWING SEASON
Too much sun, too much rain, too hot, too cold, the only thing we know for sure is that summer will follow spring. We also must always remember that we are dealing with weeds. Very sophisticated weeds, but weeds none the less. Last year at this time crop plantings were roughly half of the rolling 5 year average and still ended up just fine with generally favourable weather through harvest. So far this year on average plantings are slow and similar to last year being well behind the general five year averages. It is already “giving a bid” to the grains as the market is fully aware how tight ending stocks are. It is far to early” to kill the crop” (lot’s more buzz phrases to come) but the market is reflecting just how “twitchy” things will get as we go through the summer. In my years following the grains, the crop will be”made” or fail perhaps a number of times. Refer to the first line, for every Friday the drop will be made or it will fail depending on rain, or shine, or cold, or hot. And every Monday whatever you expected Friday may or may not come through. Mostly not.
This year we do however have already a very scary development in the works that will impact the Northern Hemisphere crops in some way. My fear is that it will be very negative, and could shorten the critical growing season more and more as you move north longitudinally from the equator. Which means in the northern U.S. plains, Canada’s western provinces, Northern Eastern European and Russian growing areas, (which are the most productive in the world) may be under stress all summer from the four weather fears we mentioned at the start.
The world relies on solar radiation to heat the planets surface to allow us to grow the crops that we rely on for food. Without the loving warmth of the sun life as we know it would not be possible. This is NOT a discussion on global warming!! We are however experiencing an event from our sun that hasn’t happened in as much as 200 years. We have now set many recent records in how few sunspots our sun has produced. There is a very well defined cycle that our sun has followed pretty much since records were started hundreds of years ago. We are of course much more sophisticated now than we were when Galileo stared to look at the sun but in that time a cycle of essentially eleven (11) years has been established regarding the number and frequency of sunspots that occur during the 11 year cycle. They are generally very easy to predict and really very consistent. We have now gone more than 100 days longer and with unprecidently low sunspot activity than we have in more than 100 years and arguably since the 1700 and what was referred to as the MINI ICE AGE by climatologists’. Now blamed on everything from the failure of the first European colonies in the New World to the spread of many of the plagues and crop failures that afflicted Europe. This lack of sunspot activity is unprecedented in our time.
Science has made many direct connections between sunspots and solar winds, and the amount of radiation that the sun emits which obviously affects our planet. By extrapolation I assume that this will also affect the warming of our Northern Hemisphere this growing season. So far this year it may be the cause for our unusually cool and extended spring in many parts of North America. Apparently the oceans of the Pacific are somewhat cooler as well. I cannot make a definitive statement that this is going to negatively impact this years crops, but I know for sure I wouldn’t bet against it.
Probably the most important number to remember this year is 120. This is how long is required to start and finish a crop on average. It is not just 120 days but 120 days of good growing conditions. Enough warmth, enough dry, enough time to fill heads and be successfully harvested. Loosing even a few of those days sharply reduces the yield and may even cause what’s termed as a crop failure.
Charts
The links above cover the “new” crop charts for wheat and corn with a link showing how many fewer sunspots we are experiencing compared to the last low level a few years ago.
CONCLUSION
This is where I get to say “This is what I know”
- We are already behind the five year average for planting.
- The carryover from last years crop is okay but not great.
- We have established the longest and lowest sunspot activity (with no end in sight) for more than 100 years.
- There is already as much or maybe even more than a 30% potential decline in fertilizer usage in North America and probably the rest of the Northern Hemisphere growing regions this year.
- There will be some reduction in yield, bushels/acre compared to previous years.
- You do NOT want to be short the agricultural complex this year!!!
If you are interested in how I intend to take advantage of what I believe will be a tremendous money making opportunity for my clients feel free to give me a call and get things started.
This will be a very special and unusual year in the recent history of our agricultural markets!
Mackie Research Capital Corporation (MRC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRC website please understand that it is independent from MRC and that MRC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRC.
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital (”MRC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.