Devastating drought is pure boon for potash prices

Drought conditions in both North America and Eastern Europe are providing a major boost to the price of potash and potash-related financial products.

Although severe adverse weather conditions in key crop growing areas of the northern hemisphere have devastated crops they have also served as a pure boon for potash and other fertilizer products. Summer corn prices have hit record highs in the wake of the worst US drought since 1956, bringing benefit to agriculture-related commodities.

According to Bloomberg ETF's targeting agriculture have rallied in the wake of the drought, with one of the most prominent as well as promising being the Global X Fertilizers/Potash ETF – the only pure fertilizer play amongst ETF's.

Bloomberg's ETF analyst Eric Balchunas says potash is one of the first things farmers purchase when crop prices rise, while the wave of fresh market entrants in the year following such price gain serves as an additional medium-term boost for the key fertilizer ingredient.

As consequence when it comes to betting on the agriculture sector pure fertilizer plays reap pure benefit from drought-induced high crop prices, as opposed to bets involving food companies which actually have to purchase the corn.

Proof of this is the performance of the Global X Fertilizers/Potash ETF, which has surged 16% since June 1, while agricultural ETF's with stakes in food companies have logged inconsistent price gains.


Listen to Bloomberg interview with ETF analyst Eric Balchunas>>