Developing World, Meet Meat

While it's a puzzling concept for those of us reared on McDonald's (NYSE: MCD  ) and Wendy's (NYSE: WEN  ) , a majority of people in the world do not have the luxury of meat as a source of protein in their diet. In certain quarters, change is coming at an astounding rate, with 40 million people in China and India entering the middle class each year. That means more meat, and more meat means a lot more grain to feed those meat machines (formerly known as animals), and even more fertilizer to grow that grain.

This is where Potash Corp (NYSE: POT  ) , the world's largest fertilizer company, comes into play. You might imagine that Potash is having a pretty good year, what with the ethanol frenzy driving record corn planting here in the United States. Add in the company's sales to booming markets like Brazil and the countries mentioned above, and Potash is in fact having a fantastic year.

Pricing was strong across Potash's three fertilizer groups, lifting gross margin by 93%. Currency fluctuations (if you can call the dollar's unabated downward march a fluctuation) and an abnormally high tax rate prevented all of the gross-margin goodies from dropping to the bottom line. Still, a 67% rise in profit isn't half bad.

The company described the market for its namesake product as "exceptionally tight," and recent news of a mine flood in Russia has the potential to be the biggest market dislocation since Cameco's (NYSE: CCJ  ) Cigar Lake disaster sent the uranium market into a tizzy. Until the outcome is clear, Potash has suspended all new potash sales. Ditto for Agrium (NYSE: AGU  ) , and Mosaic (NYSE: MOS  ) would certainly have done the same, had it not sold forward all its 2007 potash production already.

If indeed we see a major disruption, I imagine there will be something of a fertilizer stock eruption. That's unfortunate for investors, rather than traders, because the valuation is likely to get out of whack in the process. The long-term picture here is excellent, and I hope those of us just encountering this story will get a better entry point somewhere down the line.


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