A "solid revival" in global potash sales is underway, but the slide in corn prices has tarnished chances of an imminent rebound in prices, Credit Suisse has said.
There was "solid evidence" of a recovery in demand for the nutrient following China's long-awaited agreement over potash imports last month which, while at a lower price than many observers expected, had set a floor for prices.
Companies worldwide had confirmed a revival in potash volumes in recent weeks, with US producer Intrepid Potash reporting sales up 60% year on year, with some European and North American groups signalling price rises from March.
"Confidence is coming back," the investment bank said, noting the potential for global volumes to beat an informal consensus of 47m tonnes this year,
"We see strong demand and talks about price increases as a clear change of sentiment."
Corn price vs potash price
Nonetheless, it looked premature for suppliers to think of charging farmers more for potash when corn prices had fallen more than 10% in two weeks.
While the economics of growing corn, the most fertilizer-intensive of the big three crops, still inferred farmers making a profit, corn prices, compared with those for potash, remained marginally "unattractive" on a historical basis.
Farmer economics per acre, with corn at $4 a bushel
Input costs: $252.70
...including fertilizer at $95.90, seed at $69.20, and chemicals at $27.90
Source: Credit Suisse. Assumes yield of 152.0 bushels per acre
"The corn-to-potash spread… doesn't leave much room for potash price appreciation," Credit Suisse said.
The bank estimated the breakeven price for US growers at $3.30 a bushel, compared with the $3.99 a bushel that new-crop December corn stood at on Monday in Chicago.
Phosphate 'on fire'
Credit Suisse stood by forecasts that potash prices would recover from an average of $360 a tonne this year to $460 a tonne in 2011, but said the increase will be felt towards the end of the year.
The bank also restated outperform ratings on shares in PotashCorp, the world's biggest fertilizer group, and Russia's Uralkali.
The report follows a note from analysts at Sterne, Agee & Leach on Friday which said that prices of diammonium phosphate, a major form of phosphate fertilizer, were "on fire, with Tampa prices now up to $438 [a tonne], (excluding freight) after having gotten as low as $270 [a tonne]".