Rising cost of food means more potash demandWhen the Federal Reserve moved forward with a second round of quantitative easing in November, one of the deepest fears that critics openly voiced was that it surely would lead to inflation, and possibly hyperinflation.
When the Federal Reserve moved forward with a second round of quantitative easing in November, one of the deepest fears that critics openly voiced was that it surely would lead to inflation, and possibly hyperinflation.
While inflationary figures currently appear to be within the range of expectations, food prices definitely are on the rise. Corn, wheat and soybean prices hit multiyear highs during the first quarter 2011, and food prices do not appear to topping out.
Now, there are several ways to play this rise in food prices. The most straightforward path would be to buy commodities futures contracts, but there is another way — the potash industry.
Potash is a common term for mined and manufactured salts that contain potassium. Potash is not table salt. In fact, more than 90 percent of potash produced is used in fertilizer products.
As food prices increase, demand for fertilizer significantly increases as well, since more farmers are planting more crops, which leads to an increased demand for fertilizer products. Therefore, a nonconventional way to cash in on the rise in food prices is to buy stock in potash producing companies.
Allana is a Canadian-based potash producer that has a 100 percent interest in exploring and developing potash deposits in Ethiopia. Because of its base in Canada, Allana deals heavily with the USD CAD exchange rate. Allana received strong recognition in the last year during a failed takeover bid by BHP Billington.
Allana has an established management team in place. CEO Farhad Abasov was a key member of the management team at Energy Metals, which was sold off for $1.8 billion to Uranium One in 2007.
Allana has a strong relationship with the Ethiopian government. Ethiopia is considered one of the friendliest emerging markets, and the government encourages foreign direct investment and the exploration and mining of natural resources.
Allana has discovered a large, near-surface potash deposit in Ethiopia. Of course, this means mining costs will substantially be lower.
Potash Corp. is the largest potash producer in the world. It controls more than 20 percent of all potash production around the globe. Potash stock may not rise the most aggressively of all potash mining and development stocks in 2011 if potash demand stays strong, but it is a more conservative bet.