Competition Hits Potash Market

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"Over the next few years, potash demand is expected to increase in the range of 3 to 5% per annum."

Potash miners are facing heightened competition as the potential for profits is attracting mining companies to find and develop potash reserves. Historically, the potash industry has been dominated by a small group of companies whose sole focus has been potash. Now, as the global economy recovers from a recession mining conglomerates with ample cash reserves are looking to get their piece of the pie.

This is exactly what we witnessed with BHP Billitonís (NYSE: BHP) purchase of the Jansen Project in Saskatchewan, and their hostile attempt to acquire Potash Corp. of Saskatchewan (NYSE:POT). Other diversified miners, including Vale, have been open about their intentions to enter the potash market.

The potash industry is poised to grow. Potash increases crop output, and with a growing population and shrinking amount of arable land, fertilization to increase output is necessary. Over the next few years, potash demand is expected to increase in the range of 3 to 5% per annum.

This year, we have witnessed a microcosm of what can drive up potash prices. A Russian drought has crimped the wheat supply, and the United States witnessed lower than anticipated crop yields. These two major data points have combined to create a run-up in grain and oilseed prices. The price of corn has shot up to $6 a bushel. As grain prices climb, farmers have the cash and incentive to increase output.

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