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By Rod Nickel
WINNIPEG, Manitoba May 1 Germany's K+S AG
will crack into the U.S. fertilizer market this
spring when it opens the first new western Canadian potash mine
in nearly five decades.
But the fifth-largest global potash seller faces a stiff
challenge before it makes a single delivery: where to store the
pink granular nutrient until farmers need it.
The U.S. market for potash - a key type of fertilizer used
to grow corn and wheat - is already dominated by Potash Corp of
Saskatchewan, Agrium Inc and Mosaic.
It's also saturated: potash prices are near nine-year lows.
Not only do these market leaders have an ample supply of
potash, they also boast a string of warehouses built
strategically across the Midwest where they can quickly
distribute their product to U.S. farmers, who have a narrow
window every spring to fertilize.
K+S, which will open its Legacy mine on Tuesday in
Saskatchewan, told Reuters it is still in "planning phase" of a
warehouse network with Koch Industries Inc, which
will sell K+S' potash in the United States under a marketing
K+S spokesman Michael Wudonig added the company is confident
it will find sufficient storage. Koch spokesman Rob Carlton
declined to comment.
Investors don't have a clear understanding of K+S' missing
warehouse link as it opens Legacy, according to analyst Charles
Neivert, who covers the fertilizer industry at Cowen.
“How are they going to get into a U.S. market that
effectively is grossly over-supplied already and isn’t growing?
Where are they going to find room to put the (potash)?" Neivert
K+S' success in distributing potash has big market
implications, given there is already a glut of global capacity.
Even more potash from Legacy will threaten a modest price
recovery seen so far this year. For a graphic, click tmsnrt.rs/2oMvk6G
Since K+S broke ground on Legacy, U.S. potash prices have
fallen roughly in half, to around $250 per tonne, according to
data published by BMO.
K+S plans to sell up to 500,000 tonnes of potash annually in
the United States, accounting for some 7 percent of U.S. demand,
according to industry estimates. Legacy will also answer a
longer-term supply issue K+S faces, as potash at its other mines
WAREHOUSES ALREADY OCCUPIED
Potash Corp, Agrium and other potash players dominate the
U.S. market by leveraging their own warehouses and longtime
leases with others to position potash for just-in-time
application by farmers.
The alternative is relying on the 10- to 14-day railway trip
for potash to move from mines in Saskatchewan to buyers in the
Midwest and northern Plains.
"Many of the large warehouses already have space consigned,
so (K+S') opportunity to get placed in the large facilities
could be difficult," said Gary Halvorson, vice-president of
retail agronomy at U.S. farm cooperative CHS Inc.
"That is a very key piece of supply chain," Halvorson added.
"For any manufacturer of dry fertilizer, they really need to put
their back into having tonnes close enough to end users."
CHS has nearly 500 U.S. farm retail stores along with
warehouse space that it leases to potash suppliers. It has not
leased space to K+S, the company said.
"That's the challenge K+S faces to break into the market,"
said Joe Dillier, director of supply and merchandising at
Growmark, an Illinois-based farm cooperative and distributor
that leases some storage space to potash miners.
K+S partner Koch could store some of K+S' potash in its own
fertilizer warehouses, and K+S has said it will take until year
end to reach Legacy's full annual output pace of 2 million
tonnes. Three-quarters of production will be sold to industrial
users or off-shore buyers.
Legacy is opening as farmers plan to sow less corn, a
fertilizer-intensive crop, making crop nutrient sales a bigger
To break in, Koch may need to cut prices to sway U.S.
buyers, since K+S' logistics will not be as smooth as for
established players, said industry consultant Kelvin Feist.
"There is no easy way in - you have to discount the price,"
Feist said. "Koch is late to the party."
Lower costs would be timely for U.S. farmers, struggling
with declining incomes and used to dealing with a consolidated
farm input sector, said Aaron Heley Lehman, president of Iowa
Farmers Union. He welcomes the potash mine.
"It's long overdue for our farmers to have more choice."
(Reporting by Rod Nickel in Winnipeg, Manitoba; Editing by
Denny Thomas and Edward Tobin)