Heard What Potash Corp. Just Said About the Russia-Ukraine Conflict?

PotashCorp recently offered an interesting perspective on the crisis -- It may not help your fertilizer stocks much.

Apr 30, 2014 at 10:45AM

If you're one of those investors who bought into potash stocks on speculation of higher potential nutrient prices following the Russia-Ukraine conflict, you may have jumped the gun.

Shares of PotashCorp (NYSE:POT) and Intrepid Potash (NYSE:IPI) have tacked on more than 7% each, while Mosaic (NYSE:MOS), which gets a third of its sales from potash, has seen its shares climb around 3% over the past couple of months, largely on speculation. But PotashCorp just ruled out the Ukraine conflict as anything major, and provided an interesting perspective to the situation that should make investors pause and rethink.

What difference can Russia make to the potash market?
The theory doing the rounds is that potash, one of the key export products for Russia, could come under the purview if any trade sanctions were to be imposed against the nation. Russia has the second-largest potash reserves in the world after Canada, and is among the top two global producers and exporters of the nutrient. The following graphs from PotashCorp should give you an idea about Russia's standing in the potash market.

The first graph shows the world potash reserves, while the second graph depicts the world potash production and demand. Note that both graphs were last updated on June 4, 2013.


Other countries total 1%. Source: PotashCorp. Data source: US Geological Service


FSU refers to Former Soviet Union. Source: PotashCorp. Data Source: Fertecon, CRU, IFA, PotashCorp

While the first graph is self explanatory, the second graph shows how major potash-consuming markets like Asia and Latin America rely heavily on imports to fulfill their nutrient requirements. The small pie chart further indicates how three-quarters of the global potash produced is traded.

Naturally, any drop in potash exports out of Russia could upset global potash supply substantially. That could boost potash prices, and hence profits for producers nearer home, including PotashCorp, Mosaic, and Intrepid Potash.

So potash investors actually had a valid reason to bet on the Ukraine conflict. But when an analyst wanted to know what the world's largest potash producer thinks about the situation during its recent earnings call, this is what President and CEO Bill Doyle had to say:

I kind of look at it as a big balloon. The market for potash globally, if you squeeze the air out of it on one side, it tends to pop up on the other. So I don't see any real big impact if tensions should escalate, God forbid in the Ukraine. Say you had the Russians or Belarusians couldn't export to the U.S. market, let's say, it'd show up someplace else. So I don't see it as a major factor.

That's interesting, because any setback at a major potash-exporting country like Russia should ideally disturb the demand-supply situation, and impact the nutrient market considerably. But PotashCorp thinks otherwise, which could mean either of the two things: Any supply gap on lower exports from Russia or Belarus can be made up by higher production elsewhere, or global demand for the nutrient wouldn't improve enough to necessitate higher production.

Now if the first situation were to pertain, PotashCorp and Mosaic should stand to benefit since they dominate a big chunk of the global potash market. In other words, if potash exports from Russia dry up and demand remains firm, PotashCorp and Mosaic should have to boost production and sales to meet demand.

But PotashCorp perhaps doesn't see that coming, which could only mean that global demand for the nutrient will likely remain soft, and hence not put much pressure on the supply side even if a major supplier were to sit back for some time. And low demand can never be good news for any company. Furthermore, pricing is a bigger factor than volumes that drives profits of potash producers, and it's unlikely that potash prices will move much in the near future.

Foolish takeaway
It's never a good idea to rush into stocks on speculation. The crisis in Ukraine may be deepening, but with PotashCorp ruling out any major impact, investors in fertilizer stocks should remain cautious.

A potential ten-bagger for you
We maybe more than a quarter into the year, but the best stock for 2014 is yet to take off. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with amazing potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on the upcoming most lucrative trends. Last year, his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303%! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014." Do it right now, because the stock just lost some ground, throwing up a massive opportunity! 


Neha Chamaria has no position in any stocks mentioned. The Motley Fool owns shares of PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers