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Kai Ryssdal: There are days when what a news story really means can take a while to sink in. Today was one of ’em. This morning an Australian company — out of the blue, completely unsolicited — offered $39 billion to buy the world’s largest fertilizer producer. Kind of an “interesting, but so what in the grand scheme of things?” story — until you remember recent developments in commodity prices. As in, they’re going up, because supplies are going down. Wheat, in particular, but corn and soybeans too. The fertilizer company is holding out. Thanks, but no thanks to your $39 billion, they said.
Marketplace’s Jeff Tyler explains why there’s fertile ground for future profits.
Jeff Tyler: Australian mining company BHP Billiton wants to invest in Canada. Potash Corp of Saskatchewan is the world’s largest fertilizer producer.
And Standard & Poors equity analyst Richard O’Reilly says, potash is a scarce resource, not available in many places.
Richard O’Reilly: The only other producers are located in Germany and Russia and the Ukraine. So there’s a limited number of producers. And being the world’s largest, it gives a company like BHP entry into the industry in a large scale.
O’Reilly says operating on a large scale would allow the company to meet the demands of a wealthier and more populous world.
O’Reilly: The growing middle class in emerging countries like China and India — this requires a higher standard of living, a higher requirement for protein, meats and requires a greater farm output in terms of grains.
More food requires more fertilizer, says Edlain Rodriguez, an analyst with Gleacher & Company.
Rodriguez: One of the few ways that you can increase food production is through better fertilization. It mean, you have to use more fertilizers.
He says companies from other industries are attracted by the potential profits.
Rodriguez: Outsiders, like the big mining companies, are definitely interested.
It seems mining companies recognize a gold mine when they see one.
I’m Jeff Tyler for Marketplace.
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