Potashcorp Industry Trends: -Agricultural Demand

¶ … PotashCorp

Industry Trends:

-Agricultural demand is increasing with the world's population

-Arable land areas are shrinking due to environmental changes and other factors

-New and previously unfarmed land might be opening up in new areas due to warming

-Moves to natural fertilizers/compost are becoming more common on commercial farms

-Agriculture is continuing to shift to the developing world with globalized distribution

-Innovations in plant science are leading to newer and more efficient growing methods

Bureau of Labor Statistics)

Uncertainties (from high to low):

-Legislation promoting agricultural growth might be drawn back as an austerity measure

-Food price shocks could create ripple effects that put buyers out of business

-U.S. Presidential election in 2012 could cause real economic turmoil with any outcome

-Environmental legislation could impact production methods and expenses significantly

-Import legislation could restrict the flow of agricultural products and affect demand

If legislation providing subsidies and other incentives to agricultural producers are cut back or eliminated, the demand for PotashCorp's products is likely to significantly decrease. This, along with the potential for food price shocks to also negatively impact producers, runs the risk of putting smaller producers out of business. This will in turn give the major producers -- already large customers of PotashCorp -- more consolidated buying power, which could affect the price PotashCorp is able to command for its products and thus the ultimate profitability and stability of the company. It is for this reason that these tow uncertainties are seen as having the highest potential.

Scenarios

In a worst-case scenario, ongoing fluctuations in production and distribution costs that cause shocks in food prices that then ripple back and affect the profitability of production will cause many producers to leave the industry. This, coupled with a legislative end to agricultural incentives in many countries, significantly impacts the production of agricultural products and thus the demand for PotashCrop's products. Though this situation would not be tenable over the long-term, and would cause food shortages that would quickly need to be corrected, it could be severely detrimental to PotashCorp in the short-term. In a better scenario, agricultural incentives could actually be increased as an incentive to spur production and greater stability will return to food prices. Neither of these scenarios is actually very likely in the extreme, but something closer to the second scenario is more likely -- agricultural subsidies will likely continue at relatively the same levels, and food prices will continue to fluctuate but will not likely cause major market upheavals in the short- or long-terms.

SWOT Analysis