Thesis
Potash is an essential element with no substitute. Canada produces nearly 40% of the world’s supply, and it’s all from the agricultural powerhouse Province of Saskatchewan.
Although it was overheard recently that, with respect to Canada, “we don’t need anything they have”, the U.S in fact imported over $3.6 billion of potash from Canada last year, and has few, if any, alternative sources.
Potash is the most asymetrical asset in Canada’s toolkit for U.S. trade negotiations, and it’s very likely that it would be used accordingly. As Prime Minister Carney indicated any retaliation should be “with purpose and with force”.
The major potash producers have lagged the commodity sector for the past decade, and with the prevailing trade war and ongoing currency debasement, potash appears to be a discounted approach to go long physical commodities.
The Potassium Cartel
Global potash production was estimated at 64.6 million tonnes in 2022, and grew to 73 million tonnes in 2024.
Canada is the world’s largest producer and exporter of potash, accounting for about 38% of the world’s total potash production. 90% of the U.S. potash is imported from Canada.
There are only handful of major producers of globally: Nutrien Ltd (NTR), The Mosaic Company (MOS), Sociedad Quimica y Minera (SQM), Compass Minerals (CMP), and German K+S Potash.
Nutrien is the world’s largest potash producer, first mining and shipping potash in 1959. It was formerly known as the Potash Corp of Saskatchewan, and was formed with an acquisition with Agrium in 2018.
As there are only a handful of players, there is an empirically strong correlation in their share prices because they operate effectively as a cartel.
The 100-Day War
Potash has had moments of being in the global spotlight, where the share prices of the cartel reached euphoric levels. From 2005 to 2007, during the late phases of world’s excitement over China’s growth, potash had a price appreciation of over 400 percent.
I would attribute this period as highly correlated to the investor activity in various Chinese growth stories, where many observed their peak in late 2007 and subsequently began to subside before the global financial crisis.
In 2010, potash was once again in the spotlight as BHP attempted to purchase the Potash Corp of Saskatchewan (“POT”). Within Canada, POT was one of the countries most iconic companies, and deemed the crown jewel of the Province of Saskatchewan.
This hostile take-over attempt was recognized as the ‘100 Day War’ for dominance in the commodities sector, and shares of POT more than doubled in the late summer of 2010.
Although unsuccessful, BHP’s acquisition bid was the biggest business story at the time, and raised the global awareness of potash’s unique role in the agricultural sector.
Both Mosaic and Potash Corp (now Nutrien) have enjoyed considerable periods of heightened investor interest over the past two decades.
Considerations
Potash production will increase in the coming years by at least 10 percent. After their bid to purchase Potash Corp was blocked, BHP decided upon building a new mine operation in Jansen, Saskatchewan with the intention of becoming the largest producer in the world at over 8 million tonnes annually.
As BHP’s production will begin in late 2026, the global supply of potash may increase materially in the coming years, which could impact the commodity’s price. The spot price of potash is among the most volatile of commodiities, ranging from the low $100s US/mt to over $1000 since 2001.
Based on some stock analysts’ reports, Nutrien’s profits are sensitive to the commodity price, with each $100 in the underlying representing approximately $1 billion in revenues.
With the current spot of potash over $300 US/mt, the producers will have attractive profitability, but its difficult to speculate if the prevailing spot prices will remain stable with increasing production, and potentially diminishing demand (due to demographics).
The potash cartel are never discounted. Since potash production is a capital intensive operation, the producer’s have historically traded at high P/E’s; Nutrien is currently at 39.0, and Mosaic at 52.0.
Trading Strategy
Over the past year, potash has closely followed the commodity sector, although it has observed higher volatility. I would depite it as a leveraged play on the sector given its scarcity.
As there is no empirical evidence that potash has been more adversely impacted by the possibility of US tariffs, its not particularly differentiated than the commodity sector at this time.
Also, there is really nothing to suggest that the Canadian producers have any discount relative to their global counterparts.
Having said that, I’m generally just attracted to potash due to it’s relative underperformance with the commodity sector over the past five years.
Despite a supply shock rally in 2021, potash is currently 30 percent below the global commodity producers, and 20 percent below it’s pre-Covid levels.
In my view, it appears as an attractive asset to use as entry position into a bullish trade on the commodity sector, as I see an increased demand for physical assets as a hedge on the once might USD.
In the near-term, I would likely maintain a long position, hedged with a basket of commodity producers. I’d revisit the hedge (reduce or remove it) if there are any major positive developments in the trade war.
Potash is a unique, physical asset with no competitive substitute for Saskatchewan’s producers. They will most certainly outperform during periods of supply shocks and commodity rallies.
And, as for the suggestion that “we don’t need anything they have” I reflect on the observations of Queen Gertrude that “the lady dost protest too much, methinks”.