By TIM ALEXANDER
Illinois Correspondent

PEORIA, Ill. — While farmers are bemoaning drastic increases in the cost of running their operations, those who have invested in crop fertilizer companies are enjoying record returns.

Financial experts are pointing to shares offered by potash-producing companies, such as Potash Corp. (PCS) and Intrepid Potash, Inc., as prime examples of the trend.

“The reason we’ve seen the rise in potash fertilizer stock prices is attributed to the soaring demand in our global agriculture markets for this product,” said Carol Hultgren, a financial consultant with Carver & Associates Wealth Management Group of Peoria. “Some of the heaviest demand comes from China and India.”

Potash fertilizer is used in grains and oilseeds, which are used as ingredients in food, animal feed and biofuel.

Shares of PCS stock were selling for $195.60 at press time, up from a 52-week low of $64.55 on May 24, 2007, but down from its 52-week high of $215.97 on April 23.

Additionally, shares of Intrepid Potash jumped 57.5 percent in the company’s initial public offering (IPO) on the New York Stock Exchange in late April.

“The (Intrepid) price came out spot-on with what we were looking for,” Ben Johnson, an analyst for Morningstar, told Investor’s Business Daily (IBD). “We knew there was going to be a lot of demand.”

Analyst Matt Therian of IPO research firm Renaissance Capital also said, “We are not surprised by the first-day action.”

The reason for the high expectations, IBD reported, is record demand for crop fertilizers amid the worldwide agricultural boom. China-based Sinofert recently ordered 1 million tons of potash from a Canadian producer for $576 per ton – a 227 percent price increase from the previous year’s contract.

With only 20 potash companies existing worldwide and only seven responsible for 83 percent of world production, supply is extremely limited.

Investors are attracted to the potash market because of the profitable combination of booming demand and limited supply, said Kathy Mathers, vice president of public affairs for The Fertilizer Institute.

Johnson said in the April issue of StockInvestor that investors in Saskatchewan-based PCS, the world’s largest potash producer, are enjoying large returns because of skyrocketing profits for all three of the crop nutrients PCS produces.

“(PCS’) potash segment accounted for 48 percent of consolidated gross profit in 2007. The segment’s gross profit increased by nearly 63 percent on an absolute basis versus 2006,” Johnson said.
“PCS is also the world’s second-largest nitrogen producer by volume. The nitrogen segment accounted for 28 percent of consolidated gross profit in 2007 and increased gross profit by nearly 70 percent on a year-over-year basis.

“Finally, PCS is the world’s third-largest phosphate producer. The phosphate segment accounted for 24 percent of consolidated gross profit in 2007, and increased gross profit to a level nearly 3.5 times its 2006 result.”

The stock of PCS has appreciated by more than 10 times over the past four years because of profits achieved in all three of the company’s nutrient divisions, Johnson said. In addition to China and India, Brazil is using more crop fertilizer than in years’ past, further fueling demand for potash.

“As per capita incomes rise in these economies, they have seen dramatic shifts in dietary preferences, most notably in the form of increased protein consumption,” Johnson said. “When people eat more meat, it has a multiplier effect on the demand for grains, because every pound of meat we produce requires about 10 pounds of grain. (This varies by the type of protein; for example, cows eat more than chickens.)

“This has put tremendous stress on global grain supplies, and global grain production has lagged consumption in seven of the last eight years. One of the simplest ways for growers in the developing world to boost their grain production in order to meet surging demand is to make better use of fertilizer.”

Johnson said the high returns on investments in potash companies are sustainable. “The supply and demand balance within the potash market is extremely tight and will likely remain so for at least the next five years or so, until either the bulk of the incremental demand from the developing world has been met or new supplies make some slack in the market,” he explained.

“Second, growers’ purchasing power, which is ultimately a factor of global grain prices, will also likely remain high for several years as global grain inventories remain at or near historical lows. High grain prices provide both the means and the incentive for farmers to use more fertilizer.”