Investing in Commodities: The proof is in the potash

Posted February 20, 2008

"Even if CEO Doyle’s logic is a little, shall we say, biased, he isn’t wrong, and farmers will have to produce more and more grains in coming years if they want to keep up with the rising demand in emerging markets, which means a perfect opportunity for you to profit." — Stephanie Grimmett

by Stephanie Grimmett

Baltimore – (TFN): It must be nice to control your own stock price. You could push it up and down at your command and have a dandy time messing with day traders. And how lovely it must be to watch your shares soar just because you say so.

That’s exactly what Potash Corporation (POT: NYSE) CEO William Doyle just did. He announced in an interview that farmers will need record harvests this year to prevent famine. And, gee, how do they get those record harvests? They buy more of Potash’s potash fertilizer, of course.

POT shares rose CAD$7.90 to a record high of CAD$157.25. That’s a 5.3% gain… because the CEO advised farmers to buy more of his product.

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Even if CEO Doyle’s logic is a little, shall we say, biased, he isn’t wrong, and farmers will have to produce more and more grains in coming years if they want to keep up with the rising demand in emerging markets, which means a perfect opportunity for you to profit.

If you’ve even glanced into the commodities markets in the last year, you’ve heard this argument before. But wait a minute, aren’t the nouveau middle-class of China and India (the two fastest-growing emerging economies that also have the most mouths to feed) supposed to be eating less grains, like rice, and more protein, like chicken?

Yes, chicken, pork and beef are becoming more popular. But all of those mooing, clucking and oinking protein sources have to be fed, often for a year or more, before they can be sold to the consumer.

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And if you want to increase the bulk and weight of your bovine, porcine and poultry, you don’t leave it to the wilds of Colorado to provide enough nutrient content. You feed them hay, in the case of cows, and/or some mixture of wheat, barley, oats, soy and alfalfa.

An increase in animal consumption must be precipitated by an increase in grain production, or to put it plainly, we need more food to feed our food.

And that is how you push up fertilizer sales with a single blow, which for the investor, means you should find a good fertilizer producer and jump in now before spring thaw.

As for a specific company, I don’t recommend you put your money into to the $155 (that’s U.S. dollars) Potash Corp. It’s much too expensive. I’d like to see it come down below $100 before I buy into the market leader. But I’m sure a fertilizer company worth its salt (or its nitrogen) is out there.

And if your interested in investing in growing global grain consumption here’s a great place to start: Our friend Andrew Mickey at BreakAway Investor has been researching the potash industry for months now, and he’s come up with a shiny gem in the well-fertilized soil. So I’m going to place you in his capable hands to find more specifics and valuable recommendations.

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