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PotashCorp’s Potash Shipments Are Expected to Grow

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Potash segment

In terms of gross profit, the potash nutrient segment is the largest segment at Potash Corporation, or PotashCorp (POT). This segment generated 58.6% of the firm’s total gross profit during 2Q15. Gross profit grew 5.5% to $417 million compared to a year ago.

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Offshore volume helped

Growth in the potash business came primarily as a result of strong offshore shipments or sales, which increased 17% to 1.8 million tons, up from 1.5 million tons in 2014. This growth was offset by weakness in North American potash shipments, which declined 31% to 0.6 million tons, down from 0.9 million tons. The North American segment experienced weakness due to higher imports.

Outlook

PotashCorp’s management expects that potash consumption will range between 58 million tons and 60 million tons in 2015. Potash consumption beyond 2015 is expected to grow at an annual rate of between 2.5% and 3% and reach 70 million tons, globally, by 2020.

Potash demand is expected to decline in 2015 compared to 2014, but PotashCorp’s contracts with China and India will help it maintain shipments to both of these markets for the rest of the year.

Asia, North America, and Latin America consume over 80% of global potash output. China and India are the biggest consumers of potash. Historically, these countries have under-applied potash, and this has suppressed their crop yields. As these countries become more efficient, potash use in agricultural production will increase.

In Latin America, Brazil is already the largest consumer of potash. As Brazil expands its agricultural production, given its naturally low-nutrient soil, most of the potash growth will continue to be driven by this country.

These developments should prove positive for PotashCorp, Mosaic (MOS), CF Industry (CF), and Agrium (AGU). The broader VanEck Vectors Agribusiness ETF (MOO), which invests 33% of its portfolio in agricultural chemical stocks, should also benefit.

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