Bumper crop of corn threatens potash prices

A temporary surplus in corn and soybean commodities is affecting the price of potash, just as three new companies are joining the potash business in Saskatchewan.

Corn, a staple in processed foods as well as in the production of ethanol and animal feed, is also a leading indicator in potash prices. With bumper crops this past year in the U.S., eastern Europe, Russia and Australia, demand for fertilizer has decreased dramatically.

To withstand the decrease in demand and reduce supply, PotashCorp in Saskatchewan has instigated an extension of its Christmas shutdown in an effort to stabilize prices.

But analysts like Colin Boyd, a professor at the University of Saskatchewan’s Edwards School of Business, say that demand for food will soon prompt the production increases that new start-ups are counting on.

“It’s like any commodity,” said Boyd. “There are ups and downs, but then we hear the United Nations saying there’s going to be a food shortage in the world, and we’re not making more land, so what we’ve got to do is get more crops out of the existing land. That’s why everybody is betting on potash being a valuable resource in the future.”

Boyd likens the current increase of players in the potash business to a gold rush. While some players may bail out of their planned new mining facilities because of oversupply and price fluctuations, ultimately potash prices will even out.

“I think it changes the economics a bit,” said Boyd. “But to have more potash is actually good for the world. If the price of potash actually does drop a bit, that’s actually good for the world as well. It may not be in the best business interest of some of the firms that are going ahead, but I think when we look at this in 20 years time, we’ll say that this was wise that they all expanded this production.”