Remember that emerging economies are still building their middle classes at a brisk clip, and they're expecting to eat better than they have, notes John Persinos of Personal Finance.
Consumers in emerging markets are clamoring for the “good life” that’s on conspicuous display in developed countries, driving greater consumption of grains, meat, and processed foods. This burgeoning middle class is straining the productive capacities of farmers, who seek new methods to feed the world’s increasingly ambitious appetites.
North America and Asia-Pacific are the top two consumers of fertilizer in the world, together accounting for more than 60% of demand. The growth of fertilizer demand is especially high in the BRIC nations (Brazil, Russia, India, and China), fueled by rising incomes and per-capita meat consumption.
As the world population grows by about 75 million per year, mainly in countries such as China and India, the demand for food increases. Emerging-market populations with growing incomes are mimicking their Western counterparts by embracing a more caloric diet based on meat. Livestock consumes ten times the fertilizer used to produce its feed.
Underscoring the imperative for more grain were severe drought conditions this past summer throughout the Midwestern corn belt of the United States, most likely the result of inexorable climate change. The US Department of Agriculture estimates that US corn and soybean production this year will fall 13% and 12%, respectively.
Farmers desperately need to boost crop yields; the companies that help make this goal possible will greatly benefit. Chief among these yield-boosting products is potash, the generic name for various mined and manufactured salts that contain potassium fertilizers in water-soluble form. Approximately 95% of the potash produced worldwide is used as agricultural fertilizer, with no viable substitute.
The US Department of the Interior’s 2012 Mineral Commodity Summary projects that world potash consumption will increase 4% annually during the next five years, as lifestyles improve and the global economy eventually recovers.
US farms are on track to produce considerably smaller crops this year, but the consequent surge in agricultural commodity prices will more than compensate for volume losses, keeping US farm incomes afloat. As farmers prepare for another planting season, they possess the financial wherewithal to purchase the equipment and fertilizer they need.
Betting on American Supply
According to the Fertilizer Institute, potash is produced in only 12 countries in the world. Potash deposits are particularly abundant in Canada, accounting for about 40% of the world’s entire trade in the fertilizer.
However, potash consumption is virtually universal, and farmers yearn for alternative sources of supply. That’s especially true for American farmers, who tend to manage large-scale operations that are particularly well-suited to potash application.