Why reforms and policy will drive long-term potash demand

Market Realist

Potash Corp. sees a bottom in the fertilizer market (Part 5 of 7)

(Continued from Part 4)

Food security and land reforms

Food security and land reforms are two factors that should continue to drive China’s long-term potash demand. The first policy document of 2014, released by the Central Committee of the Communist Part of China and the State Council, showed the government will hold the national food security system as a top-priority reform in 2014 and over the next few years.

The government listed ensuring grain security and supplies of major farm produce as a top priority, while policies to speed up the transfer of rural land and offer more subsidies to family farms and farmer’s cooperatives (in an effort to develop large-scale farming) were promised, according to Xinhuanet. Though China has grown tremendously over the last decade, the country’s still home to the second largest population of undernourished people in the world—160 million, or ~11% of the country’s population.

Increasing potash use

According to Potash Corp. (POT), China’s small farms have limited modernization of agriculture practices. While similar amounts of nitrogen are used, China only uses 25% as much potash per acre as the United States, contributing to an average corn yield that’s about half of the United States’. Deepening land reform by encouraging farmers to transfer their land use rights, prohibiting agriculture land for industrial use, and increasing farmers’ property earnings would promote more productive and sustainable use of arable land.

India: Government policy

As one of the largest potash importers, India is another important customer. Since the Indian rupee started depreciating in 2011, and the government started reducing subsidies for potash in 2012 in favor of nitrogen fertilizers, India’s purchases have been weak. Experts widely recognize that India’s current nutrient application, using significantly less potash than recommended, is unsustainable.

Analysts have voiced this concern since 2012. So when will it turn around? Without a change in policy, and with an Indian rupee much weaker than it was a few years ago, a significant recovery doesn’t seem near. Potash Corp. management wasn’t quite optimistic short-term, but it said India would have to address the problem in the medium term, and a recovery to above 6 million tonnes is expected in two to three years, though management stated “this is a notoriously hard business to forecast.”

In the meantime, soil nutrient depletion is hitting a “crisis stage,” based on customers’ inputs, said Potash Corp. Inventory levels have fallen as farmers continued to use potash while purchases remained weak. Potash Corp. forecasts 3.7 million to 4.2 million tonnes of potassium chloride shipments in 2014, up from 3.1 million tonnes in 2013.

Latin America and the rest of Asia 

Elsewhere in Latin America and in other Asian countries, Potash Corp. expects continued purchases, forecasting shipments to surpass previous years.

Continue to Part 6

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