Views on commodities and energy
The world’s gotta eat
Fears of U.S. recession have pushed grain prices and fertilizer stocks off recent peaks. But the chief executive of Potash Corp, the world’s largest fertilizer company, said it’s a short-term stumble. A recession could hurt some industries, but not those based on feeding a hungry and wealthier planet, said Bill Doyle. “Keep in mind we’re not in a luxury business,” he told analysts on Thursday. “Eating is very high on most peoples’ priority lists.” Doyle also said $6/bushel corn is not out of the question, on a day when nearby corn futures closed limit-up at $4.89-1/4.
Here’s part of my interview with Doyle:
Q: Are you concerned about fears of U.S. recession, given the fact that in the past few days, grain futures markets were hit so hard?
A: Everything got hit, and it’s like dropping a bomb: there’s some unintended consequences. We were hit as well. If you think about U.S. recession and its impact on global food demand, I think that there’s very little in common between those two. The reason is that food demand is such a basic item.
You have hundreds of millions of young people moving from a position where they could only eat starch, to where they are now enjoying protein… Once you get used to eating meat and fish, you don’t go back to just eating rice. That switch is so fundamental that it would take a global depression to upset the apple cart. And that’s what a lot of people don’t understand. They think that the U.S. has such a huge impact, and it does in certain industries, but it doesn’t in fundamental industries like our own.
Q: So even though fears have hit grain futures and your stock price, you believe that’s a short term impact, if the economy slid into recession?
A: That’s a very, very short term impact. And the market will see it because for our own company, obviously stock price is related to our earnings, and we’re going to have sensational earnings here in 2008.
Q: You mentioned that you thought you could see corn go to $6 per bushel. Could you elaborate on what sort of parameters you are looking at for that price?
A: An exact date? I’m not sure. I underestimated corn this past year. I’ve been a corn bull for years. When corn was $1.80 (per bushel), I told people, ‘Hey folks, corn is going to easily double and I think we’re going to $5 (per bushel) corn.’ People thought I was drunk, and just didn’t believe it, and all of a sudden we got there pretty quick.
The reason why I say that is the demand for corn is so strong and will continue to be strong. If you think about China alone: meat consumption is growing 20 percent per year, that’s for 1.3 billion people. That is a huge growth in meat. We call it the meat revolution in China. In order to feed those animals, it requires a lot of grain.
China has been traditionally a big corn exporter: China exported about 15 million tonnes into about a 75-million-tonne corn market, and now they’re going to stop exporting altogether (and will become a corn importer).
What I tell you is, with these changing fundamentals around the world, and all these people coming into this point where they have money in their pocket, there’s going to be real competition for that kernel of grain and that food supply for the first time. And that’s a big, big change.