Are China and India influencing potash pricing?
More than one report has the fertilizer industry preparing for a year when China reduces its potash imports, which would reverse a three-year increase in potash imports.
China and India have complained about potash pricing. Government involvement in negotiations has the countries taking stands against paying what the potash suppliers are demanding. India is a country that seems to refuse to worry too much about fertilizer for increasing production to meet its citizen’s food needs.
It is noted that about half of China’s potash use is for fertilizing fruits and vegetables, and the price outlook for these crops is not as strong as last year. This could influence fertilizer use just like it does when crop prices fluctuate in the U.S.
There are reports that China’s domestic production of potash has been geared to its maximum and that inventory going into 2012 was high.
No world potash supplier has agreed to confirm if they are using lower China and India exports in their business forecasts, according to industry observers. Traditionally, potash fertilizer companies cut back on production if demand appears to be soft because this helps maintain per ton prices. The fertilizer business model is quite similar to the world oil cartel in pricing based on a supply and demand curve.
On a worldwide scale, reports are that farmers have not tried to raise the fertility levels of their fields even though crop income has been good in general during the last two years. Especially for the U.S., the number of farmers making high investments in improving soil fertility has been lower than many ag retailers reportedly expected and tried to influence.
Robert Winslow, National Bank Financial Inc. of Canada, was reported by Simon Avery of The Globe and Mail, Toronto, as writing, “While the potash oligopoly can try to keep prices artificially high in a falling grain price environment, farmers are savvy buyers of crop inputs, and their potash demand can be sufficiently elastic to eventually bring potash prices more in line with other [agricultural] commodities.”