Soaring Potash Use to Test Production Ability

Soaring demand for potash is to "test" fertilizer groups' ability to produce it, considering the squeeze in world grain supplies may get even tighter.

Demand for potash could soar by 15% to 60 million tons (Mt.) this year, as high crop prices prompt farmers to ramp-up applications at a time of thin dealer supplies.

"With a highly supportive pricing environment for global agricultural commodities and potash supply chain that has yet to be restocked, we expect demand to increase," the group said.

Shipments at this level would be only marginally short of the industry's output capacity of 61 Mt.

Indeed, demand was "expected to challenge the industry's operational capability," according to PotashCorp.

"Shipments could test industry production limits in 2011," a situation which, except in 2004 and 2007, has not happened in recent decades.

Even Greater Pressure

And this tight situation, evident in North American producers' stocks falling 22% below the five-year average, was likely to remain as the world sought to meet growing needs for agricultural commodities.

"Our industry will be challenged in the coming years to produce enough potash to meet rising world demand," the group said.

Even with rising fertilizer use, farmers would be hard pressed in 2011–12 to keep pace with demand.

"After a significant shortfall in 2010–11, global grain production needs to rise by more than 5%—nearly 100 Mt.—in 2011–12 to meet projected demand," PotashCorp said.

"Historically, production has increased by approximately 2% annually. Therefore, we see potential for further tightening in global grain markets. Barring a record increase in production, the global grain supply could be under even greater pressure in 2011, pushing the world's grain stocks:use ratio close to the historical lows of 2006 and 2007."