Bob Moriarty: Food Is Fuel

TICKERS: AEFI, PPI; PPRTF, NPK, WPX

Source: Karen Roche of The Energy Report  (3/15/11)

Bob Moriarty How is the bowl of Wheaties you ate this morning linked to a barrel of oil? In this exclusive interview with The Energy Report, Bob Moriarty, founder of 321energy.com, explains why the cost of producing food is directly correlated to fuel and picks which companies are poised to benefit from the rising value of potash.


Companies Mentioned: American Energy Fields Inc. : Passport Potash Inc. : Verde Potash : Western Potash Corp.

The Energy Report: You wrote that "the uprising in Egypt began as a protest against the rapidly rising cost of food and energy." You went on to say that "it seems obvious that food and fuel are the same thing under a different cloak. Energy is food is population." Can you elaborate?

Bob Moriarty: Anyone who wants to verify this should search Google for a chart of population growth compared to oil production. The two are identical from about 1850 on. Here's why: it takes so many calories of fuel to produce so many calories of food. It's direct, linear and absolute. If the price of fuel doubles tomorrow, how much more or less driving would you do?

TER: Less, but I would still have to drive. I could not eliminate it.

BM: Would you eat more food or less food?

TER: I could eat less given the price.

BM: Everyone else in the world feels the same way. The majority of people in the world survive on $2 worth of food each day. But how do you eat less when you are on the edge of starvation in the beginning? There has been a 70% increase in the price of wheat since June. That's catastrophic.

I believe that peak oil, or the peak of oil production, occurred back in 2005 or 2006. Peak oil means peak food, which means peak population. We're going to consume less fuel per capita 20 years from now because there's simply no alternative. In turn, that means the population is going to decrease. It could decrease through starvation, disease, war or all three.

TER: In the same article, you said there are other ways that people might be able to produce more food with the same amount of fuel. Besides decreases in population, another outcome could be that less oil would drive more innovation in food production.

BM: That's the real point of the article—there are things that people can do. Potash is used to make fertilizer. As food gets more valuable, potash gets more valuable. It's not necessarily that you're more efficient in the production of food. If the price of wheat doubles, farmers can afford twice as much potash. It's not necessarily more efficient; it's just cheaper in relative terms.

TER: Besides wheat, other food commodities have recently increased dramatically in price. Potash has already risen quite a bit in cost. Looking forward, is there still a lot of upside for potash as a fertilizer component?

BM: Absolutely, because the price of food is going to go higher and higher. Potash is around $600/ton now, but it could be $1,500/ton based on the cost of food today.

TER: If the price of potash increases, do you anticipate that more juniors and explorers will be exploring for potash?

BM: That's the way supply and demand is supposed to work. When uranium went from $8/lb. to $136/lb., there were 450 companies out there exploring for it. Now that doesn't mean they'll be successful.

TER: You were a very early investor in Passport Potash Inc. (TSX.V:PPI, OTCQX:PPRTF). But, ironically, you sold your Amazon Mining (TSX.V:AMZ) shares after the company abandoned gold-mining plans for potash.

BM: Amazon had a gold project in the Amazon. I was hoping the company would get into production. Shares at the time were around $0.09. The company made the decision to go into potash. Potash was not particularly popular then, and I thought they were making a mistake. I wanted to see them advance the gold project and get it into production. So, I sold all my shares. Well, everybody in the universe discovered potash at the same time. Amazon Potash is an $8 stock now. I should've hung on to the stock. That was a very expensive mistake on my part.

TER: What about Passport changed your mind about potash?

BM: Someone presented the Passport story to me about two-and-a-half years ago. It had a big land position in Holbrook Basin, Arizona. I bought into it. Potash was about $900/ton back then. The stock went up to around $0.22.

The company came to a point at which it had squandered all its money. Fortunately, the company found a deep-pockets investor. The investor thought that it sounded like a pretty easy deal, and asked what the company needed to succeed. They said, "We need a check for $750,000 right now so we can go drill." They did drill and it was successful. The investor was buying shares at a nickel each. The stock was around $1 two weeks ago. He made a ton of money in it.

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