Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

6132

Rising food prices are back with potash ambitions added to the mix

RELATED TOPICS​

With the years of plenty over and food prices rising in both the developed and developing worlds, the USD40bn (GBP25.9bn) hostile takeover bid of mining giant BHP Billiton for Potash Corp. of Saskatchewan has broader implications, according to Newton Investment Management’s Rajesh Shant, director of investment management (European equities). 

This is evidenced “by the testy reaction to the BHP Billiton bid from the Chinese authorities,” according to Shant. “The Chinese fear that, if the bid were to succeed, it would put another key resource in the hands of a key supplier of many other raw materials.”

Shant is invested in Germany’s K+S, Europe’s largest potash producer.
 
The BHP Billiton bid underscores a number of themes identified by Newton Investment Management. Chief among these are the themes of population dynamics, developing economies and global realignment, which have particular relevance.

The Chinese response to the bid highlights the strategic importance of potash as a key fertiliser ingredient. Even without the bid going through, there is likely to be upward pressure on potash prices in the long run, says Shant.
 
Any potential potash tie-up, such as the one envisaged by BHP Billiton, is of concern to China as the world’s most populous nation wants to secure reasonably priced supplies of the key crop nutrient to feed its people, faced with a shrinking supply of arable land. A common strand for developing countries, such as China, is that as the local population experiences a rise in living standards, so dietary habits change. Consumption of traditional staple grain – wheat and rice – has stagnated as the Chinese have developed a greater appetite for meat. Production of meat commands greater use of resources – it takes several kilograms of grain to produce 1kg of meat.

As farmers seek to increase yields, there is also a growing demand for crop protection, provided by companies such as Switzerland’s Syngenta. An impetus for increasing yields is that inventories are presently very low.

“Prices are likely to rise, stimulating production,” says Shant.

The state of inventories can also be exacerbated by unpredictable events, such as drought. Russia’s worst drought in at least 50 years, which has already driven up wheat prices in the biggest jump since 1973, shows no signs of easing and now threatens the sowing plans for winter grains.

Another Newton theme is “earth matter”, which recognises environmental issues have moved to centre stage. An unintended consequence of US corn going to ethanol production was that it is widely blamed as a cause for food riots in 2008.

Shant is manager of the Newton Continental European and Newton European Higher Income Funds.

Latest News

New research from Carne Group reveals fund managers expect alternative asset classes to see the..
Brown Brothers Harriman & Co has expanded its relationship with AllianceBernstein (AB), by adding to..
The trading and investment platform eToro has extended its proxy voting feature to all stocks..

Related Articles

The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a possible buyout of EY’s Italian consulting branch...
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a..
Pension funds
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next decade, industry research reveals...
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next..
Tim Crawmer, Payden & Rygel
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also, given that equities had a strong year last year, big funds have taken some chips off the table in equities and put them into fixed income...
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also,..
Lady justice
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI) strategies received glowing commendations from the Bank of England in its March report...
Top marks for the Pensions Regulator (TPR) whose efforts to improve resilience in the UK pension funds’ liability-driven investment (LDI)..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by