The Goddess of Fertility

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Since I first covered Potash Corp. of Saskatchewan (NYSE: POT) last fall, world food supply issues have become a media mainstay. Food riots have hit Haiti, Yemen, Egypt, Mauritania, and countless other countries. The situation looks grim.

Unless, of course, you're a fertilizer producer. Prices are soaring for potash, phosphate, and nitrogen. The fertility goddess PCS happens to produce all three, though she is aptly named for her top product.

While recently IPO'd Intrepid Potash (NYSE: IPI) is making some waves, Potash reigns supreme in this fertilizer category. In the first quarter, the firm tripled its gross margin earned on potash sales, to more than $500 million. By gross margin, the company is referring to sales net of freight and other selling costs. Potash gross margin as a percentage of revenue, a more familiar notion to most of us, soared to 71%.

Over in nitrogen-land, where Agrium (NYSE: AGU) and Yara International are also having a field day, natural gas prices are having an important effect. Though the increasing prevalence of liquefied natural gas isn't lifting all boats, the ever-more-global market for the alternative fuel is pushing prices higher. Since natural gas is the key input for nitrogen-based fertilizers like ammonia, higher global gas prices are nudging nitrogen products upward as well. That, of course, is in addition to the demand pull from the world's farmers.

We've already looked at Mosaic's (NYSE: MOS) phosphate-fueled rocket ride, so the following is no great surprise: Potash pulled down 134% higher prices for solid fertilizers in the segment, lifting gross margin about two and a half times. This came despite significantly lower sales volume, stemming from lower inventories.

Inventory issues are key to the bigger picture here. North American potash inventories, for example, were 37% below their five-year average at quarter's end. Think about how strong our natural gas prices are today, even with storage right around its average. No wonder Potash was so miffed when people pooh-poohed the stock price back in January. That share repurchase is looking pretty prescient.