BusinessWeek has a look at a key agricultural input commodity, phosphate - Phosphate: Morocco's White Gold.

Miners have been working in Khouribga for almost a century, but only now is the area poised to become central to the global economy. Back in the 1920s pioneers started tunneling through the earth here, digging through layers of sediment formed under an ancient sea, looking for phosphate-rich rock and occasionally plucking out the tooth of a 30-million-year-old shark. The phosphate extracted from the rock, used in fertilizer, detergent, food additives, and more recently lithium-ion batteries, sold for decades in its raw state for less than $40 per metric ton. Those days are gone. It's currently trading at about $130.

This is good news for King Mohammed VI, 47, who owns more than half the world's phosphate reserves. James Prokopanko, chief executive officer of Plymouth (Minn.)-based fertilizer giant Mosaic (MOS), has called Morocco the Saudi Arabia of phosphate, with all that implies about the King's power to influence prices and economies. Mohammed's strategy, by most accounts, is to drive the commodity's price higher yet—which means the cost of making everything from corn syrup to iPads will be going up as well. ...

Phosphate, when used as fertilizer, is the irreplaceable engine powering modern agriculture, and its reserves are in decline almost everywhere except Morocco. Most phosphate mines, including those in the U.S., which produces 17 percent of the global supply, have been in a downward spiral for the last decade, running out of quality rock and hindered by environmental regulation. That has forced companies to look farther afield for additional supplies. Earlier this year, Mosaic spent $385 million for a 35 percent stake in a Peruvian mine to supply rock to its phosphate operations in the U.S. and South America. Meanwhile, Australia's mining giant BHP Billiton (BHP) has been threatening to take over Canada's PotashCorp (POT), a major supplier of both potash and phosphate.

Even a temporary phosphate shortage could affect a range of U.S. industries. Phosphate fertilizer is used on just about every crop, though most in the U.S. goes to the 13 billion bushels of corn grown each year to make everything from corn syrup to cattle feed to ethanol. When prices climbed tenfold in 2007 and 2008, retailers and farmers scrambled to build local fertilizer warehouses as a buffer. Now, according to Dirk Lohry, owner of Nutra-Flo, a crop and animal nutrient manufacturer in Sioux City, Iowa, many of those warehouses stand empty as supplies are being used too quickly to build inventory. The prospect of a shortage has become serious enough that the Office of Intelligence and Counterintelligence at the U.S. Energy Dept. recently assigned an analyst to study the issue; she was not permitted to speak publicly because of "geopolitical sensitivities."

One could look at the 2007-08 food crisis for clues to how a shortage might play out. At that time, rising food prices led to riots across Africa and Asia—the Pakistani Army even stepped in to defend warehouses and farms. Before the crisis was over, China had levied a 135 percent export tariff on its phosphate to protect its domestic food supply; phosphate there is still taxed at 110 percent at the height of the buying season.

The scale of Morocco's phosphate wealth was officially verified in September, when the International Fertilizer Development Center released its long-awaited update on global phosphate resources. Morocco's portion went from the 5.7 billion metric tons still cited in U.S. Geologic Survey reports, to 50 billion metric tons—85 percent of the world's total. Even with 170 million metric tons of concentrated phosphate changing hands each year, the Moroccans likely have at least 300 to 400 years of rock available. Talal Zouaoui, OCP's director of communications, won't agree or disagree with estimates, but says in an e-mail that Morocco has "significant reserves," and notes that reserves denote only those quantities that countries have discovered and deem economically viable to extract.

With a growing world population consuming more grain, more meat, and more biofuels, demand is expected to rise at a rate of 2 to 3 percent per year, according to the International Fertilizer Assn. Some experts, like Dana Cordell, co-founder of the Global Phosphorus Research Initiative, predict that phosphate production will "peak" within the next 50 years.

Not all phosphate becomes fertilizer: About 15 percent is turned into detergents or food additives, such as the tangy phosphoric acid in Coca-Cola (KO), or the moisture-retaining salts in salami. (As U.S. states try to control the use of phosphates, which promote algae blooms in water bodies, Procter & Gamble (PG) and other detergent makers have been experimenting with phosphate-free products, with mixed results.)

OCP controls 30 percent of global phosphate exports, and plans to increase annual production from 30 million metric tons to 54 million metric tons by 2015, investing $5 billion in the process. By that time, Prayon, a Belgian phosphate processor in which OCP owns a 50 percent stake, believes demand for phosphate as a component of the lithium-ion batteries in electric vehicles could exceed demand for it in detergent.

The Australian has an article on plans to expand Australian production of phosphate rock for the Indian market, noting recent price rises have finally made exploiting reserves in northern Queensland economical - Gutnick phosphate operation to fertilise Indian economy. Interesting to note that George Soros is getting in on the act.

FORMER diamond tsar Joe Gutnick has teamed up with India's largest fertiliser supplier and investment icon George Soros in a proposed phosphate operation in northwest Queensland. Under a deal announced yesterday in Brisbane, the Indian Farmers Fertiliser Cooperative, or IFFCO, will inject slightly over $100 million into Mr Gutnick's plan to ship phosphate from the company's four holdings around Mt Isa. Reserves total a billion tonnes. ...

Dr Awasthi said India had a growing need for fertiliser, and the project should be able to supply 5 million tonnes of rock phosphate annually. ...

He said that at this stage the plan was to export the phosphate from the port of Karumba at the bottom of the Gulf of Carpentaria, but the company was still looking at "other transports which involve other ports".

The phosphate deposits in the northwest of Queensland have been known since the 1970s, and a pilot plant was built in 1974. But the project has only recently become viable because of a lift in phosphate prices. Last year world prices hovered around $US50 a tonne, the level it had been at for most of the past 30 years. Since then, decisions by the US and China not to export phosphate rock have pushed prices up to $US300 a tonne, with spot prices up to $US400.

The Australian also has an article on the ever-expanding Queensland coal industry and the intense interest in remaining high quality deposits - Deal signals BHP confidence in energy.

BHP Billiton's decision to outlay a premium price for an undeveloped coal asset in Queensland's prolific Bowen Basin has been interpreted as a sign of the mining giant's mounting confidence in the outlook for the sector. It is believed that as many as 60 parties initially showed interest in either buying or financing New Hope Corporation's New Saraji project, which BHP and alliance partner Mitsubishi plan to acquire for $US2.40 billion ($2.46 billion). While some analysts described the price tag as expensive, industry observers agreed that it further demonstrated the feverish demand for a diminishing supply of high-quality coal assets in the region.

Tom Philpott at Grist notes that of the 3 major inputs for industrial agriculture, 2 are controlled by cartels and one is produced using natural gas. Get used to high prices - Industrial ag-onistes (subtitled "The WSJ on fertilizer markets so manipulated, they might make a Saudi prince blush").

For all the misery it has caused, the global food-price crisis has at least forced people to think more seriously about food production.

I can think of few things more taken for granted in modern post-industrial society than fertilizer. Few people know people know what fertilizes the fields that produce the food they eat -- fewer, I'd bet, than know the source of their drinking water or electricity. To modern consumers, all of these things appear as if by magic.

But with food prices hovering at elevated levels and hunger protests simmering in the global south, stuff like fertilizer is suddenly front-page news. The Wall Street Journal uncorked a doozy the other day. Did you know that dominant fertilizer giants like Mosaic and Potash Corp. of Saskatchewan -- the ones I'm always writing about -- are organized into OPEC-style cartels and legally allowed to collude on price? I didn't.

Prices have rocketed for all the major inputs of industrial farming, the Journal reports, but fertilizer takes the cake.

In April, farmers paid 65 percent more for fertilizer than they did a year earlier, according to the U.S. Department of Agriculture. That compares with price increases of 43 percent for fuel, 30 percent for seeds and 3.8 percent for chemicals such as weedkillers and insecticides over the same period ...

As a result, farmers and fertilizer-importing nations are furious and beginning to look at the structure of fertilizer markets. What they've found is jaw-dropping.

In several countries, obscure laws shield makers of potash and phosphate from certain antitrust rules. In the U.S., for example, phosphate makers are among a handful of industries empowered by the 1918 Webb-Pomerene Act to talk with competitors about pricing and other issues.

It gets weirder.

In the U.S., Potash Corp. and Mosaic are the sole surviving members of a phosphate export cartel called the Phosphate Chemicals Association. Under a 90-year-old law designed to promote American exports, the companies are allowed to legally market and sell their product overseas as a single entity at a price set in consultation with one another. Similarly, Canada has Canpotex, and Russia has Belarus Potash Co., another export cartel.

So a Canadian and a Russian cartel dominate the global potash market, and a U.S. cartel controls phosphorous. These groups have a literally dominant grip on the world's serving spoon -- at least the vast swath of the earth that relies on industrial-scale agriculture for sustenance. And they're using their market power to jack up prices and reap enormous profits.

Helped by soaring potash prices, Potash Corp. of Saskatchewan Inc., one of the companies that make up Canpotex along with Minnesota-based Mosaic Co. and a smaller Canadian producer called Agrium Inc., posted first-quarter net income of $566 million, or $1.74 a diluted share, nearly triple the year-earlier figure. The company's stock has risen nearly eightfold to around $200 from about $25 three years ago. Mosaic's latest quarterly earnings came in at $520.8 million, up more than 10-fold from a year earlier.

No wonder a Wall Street analyst recently called Potash Corp. of Saskatchewan the "Saudi Arabia of Fertilizer." Actually, Saudi princes might look with envy on a Potash exec. According to the analyst:

Potash Corp. owns 22 percent of the world's potash production capacity, while Saudi Arabia accounts for roughly 13 percent of global oil production. ... The Middle East has more than 60 percent of the world's proven oil reserves, while Canada sits on about 57 percent of the world's potash reserve base.

It's jarring to reread those lines, now that I know that Canada's few potash producers are literally organized into a cartel.

Of course, the producers themselves -- sounding much like their Saudi counterparts -- say there's nothing to worry about: Just keep handing over the big bucks, and we'll supply the fertilizer. Here's the Journal again:

Potash Corp. said it can raise production to 15.7 million tons by 2015 from its current capacity of 10.2 million tons by improving the operation of its existing mines. Opening a new potash mine can cost more than $2.5 billion and take about seven years, the company said. "Developing new production takes a long time, a lot of money, and an expertise that few possess," Potash Corp.'s Mr. Doyle recently told investors.

As for phosphorous, an exec at Mosaic -- the dominant phosphorous producer, two-thirds owned by agribusiness giant Cargill -- says everyone should calm down:

Mosaic ... said it plans to "de-bottleneck" some of its Florida phosphate mines to boost supply.

Awesome. He forgot to add, though, that phosphate mining is environmentally ruinous. Among its depredations, it leaves behind radioactive waste that no one knows what to do with.

So industrial agricultures relies on three macronutrients: N, P, and K. Two are controlled by cartels, the third (nitrogen) is derived from natural gas. I ask yet again: Might there be other, less-dodgy ways to "feed the world"?

The New York Times reports that surging fertiliser prices have led to a revival of interest in guano - so much so that Peru Is Guarding Its Guano. Hopefully the spectre of new guano wars is not going to rear its head again. See here for a slideshow.

The worldwide boom in commodities has come to this: Even guano, the bird dung that was the focus of an imperialist scramble on the high seas in the 19th century, is in strong demand once again.

Surging prices for synthetic fertilizers and organic foods are shifting attention to guano, an organic fertilizer once found in abundance on this island and more than 20 others off the coast of Peru, where an exceptionally dry climate preserves the droppings of seabirds like the guanay cormorant and the Peruvian booby.

On the same islands where thousands of convicts, army deserters and Chinese indentured servants died collecting guano a century and a half ago, teams of Quechua-speaking laborers from the highlands now scrape the dung off the hard soil and place it on barges destined for the mainland.

“We are recovering some of the last guano remaining in Peru,” said Victor Ropón, 66, a supervisor from Ancash Province whose leathery skin reflects his years working on the guano islands since he was 17.

“There might be 10 years of supplies left, or perhaps 20, and then it will be completely exhausted,” said Mr. Ropón, referring to fears that the seabird population could be poised to fall sharply in the years ahead. It is a minor miracle that any guano at all is available here today, reflecting a century-old effort hailed by biologists as a rare example of sustainable exploitation of a resource once so coveted that the United States authorized its citizens to take possession of islands or keys where guano was found.

As a debate rages over whether global oil output has peaked, a parable may exist in the story of guano, with its seafaring treachery, the development of synthetic alternatives in Europe and a desperate effort here to prevent the deposits from being depleted.

“Before there was oil, there was guano, so of course we fought wars over it,” said Pablo Arriola, director of Proabonos, the state company that controls guano production, referring to conflicts like the Chincha Islands War, in which Peru prevented Spain from reasserting control over the guano islands. “Guano is a highly desirous enterprise.” ...

Peru’s guano trade quixotically soldiers on after almost being wiped out by overexploitation. The dung will probably never be the focus of a boom as intense as the one in the 19th century, when deposits were 150 feet high, with export proceeds accounting for most of the national budget.

The guano on most islands, including Isla de Asia, south of the capital, Lima, now reaches less than a foot or so. But the guano that remains here is coveted when viewed in the context of the frenzy in Peru and abroad around synthetic fertilizers like urea, which has doubled in price to more than $600 a ton in the last year.

The SMH reports that the biggest local sharemarket float of the year will be north west WA based ammonia producer Burrup Holdings - taking advantage of rising fertiliser prices and a nearby large source of gas.

Burrup Holdings, operator of one of the world's biggest ammonia plants, has launched an initial public offering for 20% of the company, looking to raise up to $502 million. ...

Burrup's 760,000 tonnes a year liquid ammonia plant in Western Australia began production in 2006 and accounts for about 6% of the world's total output of tradeable ammonia. Ammonia is a key ingredient in the production of urea, a nitrogen-based fertiliser which is widely used in the agricultural industry.

Yara, the world's biggest ammonia trader, has a 20 year offtake agreement with Burrup to market, distribute and sell its ammonia in domestic and interntional markets. Earlier this month, Yara and Burrup entered an agreement to look into the feasibility of a new 350,000 tonnes a year technical ammonium nitrate plant, used to produce explosives, also on the Burrup peninsula.

The Australian newspaper reported on Monday the planned float had been scaled down after Burrup decided not to sell excess gas from a long-term contract, which would have increased the total offering to up to $608 million. The newspaper said initial plans for the float were put on ice in February because of market turbulence.

Burrup said in a statement it was well positioned to capitalise on favourable global conditions for the sale of ammonia, with prices trading above $500 a tonne. It added it expects the strong price performance to continue.

The Australian's "Pure Speculation" column has more on phosphate production (not to mention potash) along with some sniping at bolshie readers (it kicks off looking at conspiracy theories about the silver market, for those with a liking for shiny metals).

THIS in from reader Geoff Griffiths via Optusnet: "Do some better research before you go shooting your gob off." Nice one, Geoff. This angry reader was appalled by Pure Speculation suggesting investors should be a little discerning about which phosphate plays they back.

Another -- more moderate but no less welcome -- response came from "John B" who argues that the food demand in China and India will put pressure on world fertiliser supplies. Moreover, he continues, phosphate resembles iron ore as the process and economics of mining are similar.

This column was not suggesting otherwise; rather, the point being made is that, yes, phosphate (and potash) are going to become more pricey but, also yes, a bubble was forming in the sector with investors buying stock with the most greenfield of greenfield prospects. A parallel would be the choice 18 months ago between investing in an advanced uranium explorer such as Summit Resources (SMM) or the latest $3 million float based on some moose pasture in the west.

We saw the bounce last week when Korab Resources (KOR) reported it had been approached about developing phosphate at its uranium project in the Northern Territory. Traders went in boots and all, pushing up Korab's price -- but, by Friday, the shares were on the way down again. ...

Saudi Arabia's Maadan Phosphate Co will bring its new fertiliser plant into production in just over two years' time. It will use local phosphate and cheap natural gas.

This first phase will add 2.9 million tonnes a year to the supply of diammonium phosphate (DAP) and will, by itself, tip the DAP global market into surplus, according to Barrie Bain, of the British-based fertiliser consultancy Fertecon.

The second phase will bring production up to 6million tonnes a year, equivalent to half the DAP produced around the world in 2006, according to Middle East Business Intelligence.

Morocco will remain the world's largest exporter of phosphate overall and another fertiliser, monoammonium phosphate. And last week the Moroccans signed a deal with PetroVietnam Fertiliser to build a new DAP plant in the North African country to supply Vietnam and surrounding countries with fertiliser from 2011.

One of Europe's largest producers of phosphate-based chemicals, Nilefos Minerals, is reported to be investing $US535 million to develop a 230 million tonne phosphate deposit in Uganda.

Again, all this doesn't mean that phosphate prices will fail to rise further, that phosphate won't be in deficit at times, and companies producing phosphate won't make good profits. But nor does it mean that every junior who tries to join the phosphate bandwagon is a sure-fire investment.

The Australian reports today that BHP has bought a Canadian potash company.

MINING giant BHP Billiton said today it had agreed to buy Anglo Potash for $C284 million ($A300 million). BHP Billiton said Anglo Potash's only asset was its 25 per cent interest in the Canadian potash joint venture development project in which BHP Billiton holds a 75 per cent stake. If the deal is approved, BHP Billiton would take 100 per cent control of the joint venture, which is focused on developing the first new potash mine in almost 40 years in the western Canadian province of Saskatchewan.

The world's largest potash producer is North American company Potash Corp. Energy Bulletin recently pointed to a presentation by William Doyle to Potash shareholders (pdf) quoting Norman Borlaug on the importance of fertiliser.

The company has a great Flash based app showing major fertiliser consumers and producers (the World agriculture and fertiliser map), along with various other pieces of information - have a play with it.

Good morning. Welcome to this annual meeting of PotashCorp shareholders. We appreciate this opportunity to discuss the performance and potential of your company – and to share our views on the global conditions that are shaping our industry. ...

Our potash, phosphate and nitrogen are essential to growing healthy, nutritious crops and to maximizing yields. Today, we are the world’s largest fertilizer producer by capacity – and our efforts are increasingly important to global food production. ...

The good news is that farmers have the ability to meet this everincreasing food demand – but it’s going to take time and a longterm commitment to intensive farming and proper fertilization. In the words of Nobel Prize winner Norman Borlaug, “This is a basic problem...without fertilizer, forget it. The game is over.”

Potash producers are currently thriving, courtesy of soaring fertiliser prices.

Across the board, the price of synthetic fertilizer has gone through the roof. Dealers are reporting farmers are paying double or even triple the amount they paid last year for the same amount of fertilizer.

Brian Fulmer, a corn and soybean farmer from Northhampton County, just got finished planting his soybeans this week. Liquid nitrogen, which he said he paid $175 a ton for last year, cost him $335 a ton this year.

He locked in starter fertilizer at $350 a ton, only to find out it had jumped to $700 a ton within a matter of weeks. “In the last two years, fertilizer prices have doubled. I hope the commodity prices don’t go back down, because I don’t know what’s going to happen,” Fulmer said.

The USDA’s National Agricultural Statistics Service (NASS) index of fertilizer prices paid by farmers, which is derived from information from fertilizer dealers, has gone up nearly 200 percent since January of 2000. Much of the increase has been within the last year.

What’s to blame? According to Penn State ag economist Jayson Harper, high fuel prices and increasing demand are the culprits. “I wouldn’t be expecting any kind of price relief for the farmer anytime in the near future,” Harper said.

According to The Fertilizer Institute (TFI) based in Washington, D.C., worldwide demand for nitrogen is up 14 percent, while demand for phosphorus has increased by 12 percent and demand for potassium has jumped 17 percent.

The Australian's "Pure Speculation" column for punters is a little cautious about the potential for further phosphate price rises - Phosphate latest craze for investors.

There was the uranium craziness, followed by mini-manias for various specialty metals and iron ore juniors. Millions of dollars was thrown at them all, but it appears that punters want to roll the dice one more time.

This time it's phosphate. Look what happened with Uramet Minerals (URM) and Krucible Metals (KRM) in the past few days. The former's stock shot up to an intraday gain of 250 per cent after it announced finding phosphate in grab samples at its Thorntonia project north of Mt Isa and -- more importantly -- next to the Lady Annie deposit controlled by Joseph Gutnick.

Krucible is also in the same neck of the woods and all it needed was for the mob to belatedly read the company's quarterly report and be reminded that it is sitting on land close to Phosphate Hill, the mine owned by Incitec Pivot (IPL). Krucible still has to get site clearances before it can drill, so it is very early days.

Yes, phosphate is going to be big. But, also yes, this has all the smell of the early uranium mania. Just as, 18 months ago, half the languishing juniors suddenly found potential for uranium on their gold (or base metals, or iron ore) tenements, now suddenly previously unsuspected phosphate indicators are being announced.

How many years is it going to take these greenfields projects to get into operation? Who knows, but investors buying for a long-term position should heed the words from New Zealand on Friday.

Peter Mourits of NZ's largest fertiliser supplier, Ballance Agri-Nutrients, made two points. One, there is no shortage of raw materials reserves and, two, new projects are well into the planning stages.

He didn't cite examples, but we can. Morocco and Western Sahara have enough known phosphate to meet the world's demand at present levels for 300 years. And big money is going into new production, including a new mine in Morocco (the so-called Saudi Arabia of phosphate). An Indian company is to spend $US1.5 billion ($1.6 billion) to build a fertiliser plant in Mozambique, a country with large known resources of phosphate. And another Indian company has teamed up with Singapore money to develop new mines.

It is true that phosphate is going to be in huge demand to meet world food needs. But it's a long way from grab samples to bagging the end product.

One final point: there may be pauses in demand growth as fertiliser use is hit by price resistance. In the past few days, there have been reports that farmers in The Philippines may no longer be able to afford it, and that NZ farmers may use less superphosphate due to cost blow-outs.

Bart at Energy Bulletin isn't so sure about this, noting:

The figure of "300 years" worth of phosphate seems strange. Most references in the literature are far less than that.