Value Microcaps Food, Agriculture and Soft Commodities

[Bobwins]

pcp.v C$.12

Peak Phosphate Ahead?
Today's Edition
-
-
A Copper Conundrum
-
-
Additional Links and Reads
-
-
Sign up now
Get Casey Daily Dispatch delivered to your inbox
-
email facebook twitter
By Chris Wood
Dear Reader,

If you ask a biologist or organic chemist what the necessary elements for life are here on earth, he or she will probably reply "CHON," meaning carbon, hydrogen, oxygen, and nitrogen. But then the answer will quickly be qualified with, "And you need sulfur and phosphorus too."

It's that last element, phosphorus, that I'd like to discuss today because in addition to being an essential component of DNA, RNA, and ATP/ADP, it also plays a major role in our global food supply - and we may be facing a shortage that could spell the end of cheap food.

To quote a recent article from Foreign Policy magazine:

Our dwindling supply of phosphorus, a primary component underlying the growth of global agricultural production, threatens to disrupt food security across the planet during the coming century. This is the gravest natural resource shortage you've never heard of.
Phosphorus is one of the three macronutrients that crops require in large amounts in order to grow (the other two being nitrogen and potassium, neither of which is facing a supply issue). In nature, we generally find phosphorus in the form of a phosphate, in which each phosphorus atom is bonded to four oxygen atoms. Phosphate is present at relatively high concentrations in "phosphate rock," the geological deposits that are mined in fertilizer production. It's this phosphate rock that many now worry is in short supply. The term "peak phosphate" has even crept its way into the agricultural sector's lexicon.

Studies from the Global Phosphorus Research Initiative (GPRI) estimate that peak phosphate could occur by 2030, and that high-grade reserves could be depleted in as few as 50 years.

Obviously, fertilizers are vitally important to food production, and a phosphate shortage could lead to skyrocketing agricultural prices and food insecurity. If we are facing a phosphate shortage, the situation seems all the more grim when one considers some of the factors affecting supply and demand for food globally.

For starters, the global population is growing by about 75 million people per year. That means we have to figure out how to feed a new population the size of Egypt's or Germany's each year as the existing supply of arable land per capita declines. One way to try to solve this problem is to convert land from other uses to farmland. The problem is that this process requires a tremendous amount of phosphate, further weighing on what many worry is a dwindling supply.

Advertisement

What's more, as the Asian middle class shifts to a more meat-based diet, demand for grain to produce that meat (and thus demand for phosphate to grow that grain) will skyrocket. Consider the example from Japan: Its meat consumption per capita jumped by about 1,000% over the past fifty years as it grew into a developed country. If the rest of Asia followed that example, demand for phosphate would go through the roof, as it requires anywhere from 3-6 lbs of grain to produce 1 lb of pork and 7-13 lbs of grain to finish and produce 1 lb of beef.

Further complicating the issue is that the bulk of the world's phosphate is tied up in just five countries. According to the GPRI, 90% of the world's remaining phosphate rock reserves is controlled by China, Morocco, S. Africa, Jordan, and the U.S. Imagine how quickly these countries would ban phosphate exports in the face of a food crisis, leaving the rest of the world with basically no way to grow crops.

This discussion would suggest that phosphate might make a compelling speculation in the years ahead. And it might. But I do have to warn you that not everybody views the supply situation as dire.

The International Fertilizer Development Center (IFDC) recently carried out a study that reassessed the phosphate rock reserves and resources of phosphate-producing countries. This study, released late last year, concluded that global phosphate rock resources suitable for phosphate-based fertilizers were far more extensive than previously estimated. According to the study, at current extraction rates, these resources would be available for several centuries. Then, earlier this year, mostly based on the IFDC report, the USGS upped its reserve estimate for Morocco and Western Sahara from 5.7 billion metric tons to 50 billion metric tons, which contributed substantially to an upward revision in global reserves from 16 to 65 billion metric tons. Meanwhile, mine production of phosphate rock reached 176 million metric tons last year... So the situation may not be as ominous as many in the agricultural sector fear.

Nevertheless, whatever the "real" supply situation of phosphate is, we can still be fairly certain that demand is going to continue to increase as the global population grows and the emerging world shifts to a more meat-rich diet. So plays in phosphate are probably a worthwhile area for investors to explore.