Bad news is good news for potash stocks

In 1996, doughts affected 100 million hectares of farmland across China. Source: China Daily

The World Meteorological Organization predicts global food output may be impacted as climate change brings more extreme weather over the next decade. China, the organization says, is likely set for harsher droughts and North America will get heavier rain.

Extreme weather in the US, the world’s largest agricultural exporter, likely attributed to record highs of global food costs in February, 2011. The UN Food and Agriculture Organization’s World Food Price Index, which tracks 55 food-commodity items, rose nine times in the past ten months.

“Extreme events will become more intense in the future, especially the heat waves and extreme precipitations,” Omar Baddour, a division chief at the United Nations' agency. “That, combined with less rainfall in some regions like the Mediterranean and China, will affect crop production and agriculture.” China's Office of State Flood Control and Drought Relief Headquarters announced recently that drought there has affected 6.5 million hectares of farmland. Huang Xiangbing, a village committee official from China's drought stricken Hubei Province pointed out, "An old saying goes 'a bowl of water now will bring a bowl of grain in harvest'. Right now is the vital time for spring irrigation, but we have not seen a drop of rainfall."

Global demand for major grains such as maize, rice, and wheat is projected to increase by nearly 48 percent from 2000-2025 according to research presented by Mark Rosegrant, Director of Environment and Production Technology at the International Food Policy Research Institute. Rosegrant, presenting at the AG Innovation Showcase held in St. Louis, Missouri this week, said “Climate change, high-and-volatile food and energy prices, population and income growth will put intense pressure on land and water and challenge global food security as never before.”

As for spinoff effects of this grim scenario, a report from the International Potash Institute says “Future demand for food is enormous and the limited availability of land and water, climate change and the need to adhere to environmentally-friendly practices – all present a huge challenge to the world’s agriculture in the coming years. Hence increased production will be achieved by both increased productivity and additional land under cultivation. In both scenarios, increased consumption of nutrients is inevitable.” The bottom line? Bad news is good news for potash stocks.

Shares of Potash Corporation of Saskatchewan (TSX:POT), the world's largest potash supplier, are faring well. Rebounding from a mid-May low of $49, the company's shares are currently trading at $53.66. On May 6th, Potash released their Q1 2011 results, which showed record gross margins and record earnings attributed to high sales prices for all nutrients and increased demand for potash.

Junior potash miners are also feeling the love. Allana Potash (TSXV:AAA), a potash exploration company working on exploration and development of a potash resource in Ethiopia's Danakil Depression has responded in kind. Shares of Allana Potash are currently trading at $1.88 up over $0.20 from last week. And shares of Western Potash (TSXV:WPX) are also on the move. The company's stock is up eight cents today currently trading at $1.31 with over a million shares already trading hands. Western, as the name suggests, is developing a project in Saskatchewan, the home of the world's largest supply of potash in Western Canada.

Lithium and Potash was the focus of Highgrade's May Issue. In the issue, we connected with Allana's President & CEO Farhad Abasov for an exclusive interview - CLICK HERE - to read more. We also discussed the future of Western Potash with Patricio Varas the company's President & CEO - CLICK HERE - for the intervi