We sold our position in Potash Corp (POT-TSX) back in 2011 after it was announced that BHP Billiton was seeking to buy the Company. The premium looked too attractive to ignore. Subsequently, we purchased Agrium (AGU-TSX) which we continue to hold. Not only did we deem AGU to be fairly priced, but it also had some features that made it stand out. It had far less direct exposure to the price of potash and it had a substantial retail division which provided insight into local demand for fertilizer. Also, because of the importance of food politics, especially in the Developing World, we were reluctant to reduce our exposure to global agriculture. Food inflation has been enough to trigger protests and revolutions in the Middle East and Asia over the last couple of decades. Governments concerned about their own survival are willing to pay a very high price in order to keep food costs contained. Whether it is crop yield technologies, food processing and distribution, or fertilizer, there will be a steady source of demand for these things for the foreseeable future.
With the news that the Russian potash giant Uralkali is leaving the global cartel and is expected to flood the global market for potash regardless of price, AGU has taken a bit of a hit. However, because of AGU’s diversification and retail operations, it was not hit as hard as the more pure potash plays such as POT and Mosaic (MOS-NYSE).
This news also highlights the issues surrounding the attempt by the New York hedge fund JANA Partners to break up AGU back in April, separating the wholesale operations from the retail operations. We voted against the proposal to break it up since AGU’s diversification was one of the reasons for buying it. And, now with the announcement of the collapse of the global potash pricing cartel, we believe that AGU integrated strategy limited the overall impact compared to the sum effect had the Company been divided in two.
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Richardson GMP Limited, Member Canadian Investor Protection Fund.
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