Stock analysts who are bullish on potash have two powerful arguments in their corner: people have to eat, and land is something that nobody’s making any more of. As billions in Asia adopt middle-class habits to go with their rising affluence, their food needs will need to be met by global agriculture—somehow. The Potash Corporation of Saskatchewan (PCS) sees its product, used as a yield-enhancing fertilizer component, as part of the solution; it’s a tale told as often in PCS investor documents as the Christmas story is in December.
“Each year, the global population grows by about 75 million,” says the company’s 2011 online overview. “It is a simple reality that more people mean more food must be produced.” Most of the growth, the slide show adds, is in urban areas—and “urban consumers tend to eat higher-quality diets that include meat, fruits and vegetables.”
But while people have to eat, there’s nothing that says they have to eat the most land-intensive agricultural products—which means, basically, beef. (In Simon Fairlie’s meat-friendly 2010 sustainability book Meat: A Benign Extravagance, he estimates that it takes about 10 lb. of feed grain to produce a pound of beef.) According to the U.S. Census Bureau, beef consumption in an otherwise growing world declined by almost three per cent from 2007 to 2010. In the U.S., the European Union and Canada, the decline was six per cent. In China, it fell by eight per cent. Maybe nobody’s making more land, but when eaters switch from beef to chicken and pork in the face of an uncertain economy, that reduces the pressure to farm existing land more intensely using costly new fertilizer inputs.
That’s one deep reason for the back-to-back nasty surprises that the potash business inflicted on Canada late last month. On April 26, PCS announced that profits were down by one-third for the second quarter of fiscal 2012; it reduced its overall earnings forecast for the year to between $3.20 and $3.60 per share, thus wiping out the $3.64 average expected by analysts, and slashed its estimate of total global potash demand and of its own shipments.
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