Intrepid Potash Faces Greater Risk Than Its Larger Competitors

While Intrepid Potash (NYSE: IPI  ) generally receives higher prices for its MOP or muriate of potash than its larger competitors Potash Corp (NYSE: POT  ) , Mosaic (NYSE: MOS  ) , and Agrium (NYSE: AGU  ) , its lack of operational diversification exposes the relatively diminutive potash player to more risk than its bigger rivals.

IPI Potash Avg Sales Price Q1 2014 v Q1 2013

The reason the company generally receives higher average prices for its potash is its proximity to growers in certain regions of the U.S., which gives them the ability to make timely deliveries in areas where they have a shipping cost advantage.

Potash is the only business segment for Intrepid Potash, while Mosaic derives roughly two-thirds of its sales from phosphate. Potash Corp. and Agrium are the most diversified of the four with solid nitrogen businesses in addition to their respective phosphate operations.  Intrepid Potash believes this is a competitive strength because potash prices historically have been less volatile, which is true. However, it also exposes the firm to the risk of excess supply or a drop in demand that could have an injurious effect on the firm's sales and profits.

Intrepid does differentiate itself from the pack in one way, and that is with its sulfate of potash business. Combining langbeinite and muriate of potash with other chemicals during the production process produces sulfate of potash, which has a low chloride content and is great for growing crops with a low tolerance for salt like strawberries, oranges, almonds, and plums. The major field crops like wheat, corn, soybeans, and oats have a higher tolerance for salt. The company markets this product as Trio. However, Trio only represents roughly 15% of overall revenues.

There is only one other firm in the U.S. that produces sulfate of potash and that is Compass Minerals (NYSE: CMP  ) , whose primary business is road and consumer salt products. Despite the sluggish potash market, the stock of this company has surged by 26% to a recent close of $92.94 per share after crashing on July 30, 2013 behind the breakup of the potash cartel in Eastern Europe that sent fertilizer stocks into a tailspin.  The rise in the stock was due to a very harsh winter that caused municipalities to clear their salt inventories and have to replenish their salt stocks. Although the company's primary business is salt, most if not all the salt companies in the United States are privately owned.

First quarter revenues and earnings per share for Intrepid Potash were lower for the third straight year. The company increased its muriate of potash sales volume by 30%. Offsetting that volume increase was a 24% fall in average sales price. The company's Trio product, of which sales volumes had sprouted for the last two years, was also down year over year. However, prices for sulfate of potash are not as sensitive to demand as muriate of potash.

IPI Q1 2014 v Q1 2013 Price Recd Tons Sold

Being a small player, Intrepid Potash takes most of its pricing cues from Potash Corp., Mosaic, and Agrium's marketing arm, Canpotex. Although potash prices have firmed during the quarter, a quick return to strong potash demand is unlikely.  In my opinion second quarter revenues are likely between $84.9 and $90.1 million with earnings per share of roughly ¢0.01 per share.  While being proficient in a firm's core competency is an essential element of a successful business, successfully expanding a firm's core abilities adds diversity that can reduce risk.

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  • Report this Comment On June 20, 2014, at 3:37 PM, Agstiger wrote:

    This article has a big glaring error. Intrepid does not produce Sulfate of Potash. They produce a different molecule called Potassium Magnesium Sulfate, which is sold in the marketplace as K-Mag (Mosaic) and Trio (Intrepid). Potassium Sulfate or Sulfate of Potash is only made in North America by Compass Minerals.

  • Report this Comment On June 20, 2014, at 5:54 PM, MaysReport wrote:

    Agstiger, thanks for reading the article and for your comments. However, I respectfully disagree with your assertion.

    I realize that there are some very specific nuances concerning potash types. Rather than hash out the chemistry in this space I will simply refer you to the company 10-K where the company states that they produce "sulfate of potash magnesia".

    Thanks again the reading the article and I appreciate your comment.

  • Report this Comment On June 22, 2014, at 5:58 PM, Agstiger wrote:

    You can disagree with the assertion, but the article is incorrect. Sulfate of Potash Magnesia (0-0-22K2O, 22S, 17Mg) and Solfate of Potash (0-0-50K2O, 17S) are two completely different products with different markets, price points and competitive structures. It is an easy mistake for a writer with little understanding of fertilzier/agriculture to make, but it is a very important distintcion. Intrepid competes with Mosaic in the "KMAG" market, while compass minerals is the sole manufacturer of Sulfate of Potash in the North American market. I know what there 10-K says. The problem is how this article incorrectly interprests that 10-K and the natrue of Intrepids competitive set.

  • Report this Comment On June 22, 2014, at 6:00 PM, Agstiger wrote:

    Sulfate of Potash Magnesia and Potassium Magnesium Sulfate are different names for the same product (trade names of KMAG and TRIO). It is a different molecule from Sulfate of Potash or Potassium Sulfate.

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GC Mays

G C Mays currently covers agricultural chemicals companies, wheat, corn, and soybean markets as well as the global macro economy. He has more than 20 years equity research and trading experience. He is expert at financial statement and data analysis.

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