Still Smoking - Buy Some Pot!

Since writing my last profile and recommending the stock, Potash Corporation of Saskatchewan Inc reported good earnings and the stock has risen nicely. The stock price has also risen due to a recent event that may drive prices for potash even further. On October 26, Silvinit announced that it may have to suspend potash shipments due to the sinkhole created by last year's flooding of Uralkali's Berezniki #1 potash mine. This could cause a significant increase in potash prices. Good news for POT! In fact, POT moved over 9% last week on the TSX. That’s a pretty good buzz for investors.

Check-out Potash on Google Finance

Based on past agronomic studies in the U.S. Cornbelt region, failure to apply potash can have significant negative impacts on corn yields for soil regions deficient in potassium. Corn futures prices for the 2008/2009 crop year are above $4.00 per bushel - corn farmers have significant incentives to maximize crop yields. According to a Royal Bank of Canada (RBC) analysys, at current fertilizer prices, potash represents about 3% of a farmer's cost of growing a corn crop following a previous crop of soybeans. There is significant room for potash prices to move higher.

The expected rise in potash prices prompted RBC to boost their target price for POT from US$115 to US$145. RBC cites higher than historical futures prices for other major crops as well as corn and that all bodes well for the fertilizer business.

Put that in your pipe and smoke it!

DISCLOSURE: I own shares of Potash Corporation of Saskatchewan Inc. Always do your homework before buying a stock. Say no to drugs!

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