Drilling Programs

Drill RigYou have decided where to drill for your drilling program, perhaps the drilling contractor has also been chosen.  You are ready to begin, correct?  Have you defined the specific infrastructure requirements for the health and welfare of the geologists, drillers, and other personnel on site?  What about the core processing that is required to ensure the proper chain of custody and QA/QC procedures?

Schlumpberger Inc has experience in making sure that your drilling will achieve all of your goals.  We can also help you to choose the correct contractor(s) for the program.  Contact Michael http://schlumpberger.co/contact/ if you would like to further discuss your drilling program set-up.Drill Rig

The Case for Regional Development

Earnings season has come and gone for potash producerail carrs. While prices continue to improve from last year, there is yet another constant in these reports. The difficulties of getting product to markets. Continued difficulties with logistics has led to reportedly near empty product warehouses. The railroads continue to see increases in shipments. Increases are coming from intermodal, raw materials and basic materials and the transportation of oil. Add to this a record grain harvest last year, and another this year, puts continued pressure on the rail system to transport not only fertilizers, but also other goods. This has led some producers to spend additional monies on rail infrastructure. For example one producer is spending $64MM on a rail transfer facility to help improve rail deliveries.

No one can argue that the Elk Point Basin isn’t a premier potash deposit. However with a continued increase in the production in this area applying pressure to an already stressed supply chain, the case can be made to develop ore bodies that may have been overlooked in years past. The finest ore in the ground means little to the customer if it can’t be delivered when needed and in the quantity required, or if capital must be spent in other areas just to get product to the customer.

If you would like to discuss this or any mining or management consulting needs, please contact Schlumpberger Inc.

Potash, A Year Later

MINOLTA DIGITAL CAMERAThey say that time heals all, perhaps the same is true with the potash markets. We are now over a year past the Russian/BPC debacle where Uralkali stated that they were going to abandon the price over volume paradigm and sell as much potash as they could. The stated reason for the break up was in essence to punish their trading partner for selling outside of the trading agreement. Schlumpberger Inc believes that there was more to this move than the stated reasons, but that is a topic for another day.

Uralkali in their latest earnings release (Q2 2014) has indicated that their production increased compared to the previous year by 33 percent. Their sales also increased compared to 2013 by 44 percent. Uralkali was also able to drive their COGS down by 12 percent to $51 per tonne. However even with all of these strong metrics, net profit for the Russian producer was down by seven percent. Their strategy of volume over price impacted more than the bottom line, as it also resulted in the jailing of their previous CEO, a change in the board of directors, and a change in majority owner(s) of the company.

Now that a year has passed, the price of potash at least domestically has returned to a level that is equal or very close to that of a year ago. Unfortunately the price of export potash has not reached those same levels, but there is speculation that an increase is in the works for some of the 2015 contracts. The volumes for potash are also reaching record or near record levels, especially that of domestic potash.

Revenues and production are one part of the value equation, but more than just the price of potash was affected with this maneuver. In looking at the share price of fertilizer and potash producers, or those working to develop potash projects, the stock price continues to languish from that prior to the Russian announcement. For those integrated fertilizer producers the price is off a little (and this is in spite of share buy backs which should boost share prices), and for those working to develop properties it is off by almost half, or in some cases substantially more than that.

What does all of this mean? First that there are going to be “bumps in the road” as projects develop (and not just potash projects!). The Russian strategy caused considerable uncertainty and unrest in the markets, but largely the domestic market appears to have recovered and prices are returning to a more normal level. The increase in volume has also highlighted that there are issues within the logistics infrastructure of some areas that can cause disruptions to the delivery of this necessary mineral.

With the economics of potash returning, strong demand, and these infrastructure issues perhaps there is still room for good potash projects that meet certain needs and criteria.

If you would like to discuss a project, please contact Schlumpberger Inc.

Fertilizer Logistics

rail carWith the second quarter potash results posted, it is interesting to note that all of the major North American producers reported continued logistical issues with delivery of fertilizer to customers. A majority of North American fertilizer is moved via the rail system, with thirty six percent of the fertilizer in the United States transported by rail. Most of the major rail systems have reported an increase in the number of rail cars shipped for the first half of 2014 as compared to 2013. The chart below indicates total rail cars shipped comparing 2014 to 2013 on a percentage difference basis.Rail DataUnfortunately, reliable data to sort out how many rail cars of fertilizer by carrier becomes much more difficult as each carrier categorizes fertilizer loads differently. Canadian Pacific specifically spells out fertilizer shipments, while CN and BNSF lump fertilizers in with other agricultural products. Finally Union Pacific combines fertilizers with other chemicals.

For the carriers that spell out fertilizer shipments, CP decreased fertilizer shipments by over 9 percent for Q2 2014 compared to 2013, shipping 49 thousand cars. UP increased fertilizer shipments by 2.4 percent shipping 52 thousand cars in Q2.

As mentioned CN and BNSF’s data is mixed with the shipment of other agricultural products. However CN saw an increase of over 13 percent for H1, and BNSF saw increases of over 2 percent for the shipment of these products. This stands to reason with the large 2013 crop harvests as well as record fertilizer shipments in North America.
It can be expected that there will continue to be pressure on the logistics of shipping fertilizers over the near term as empty fertilizer bins are being reported across North America, and record crop production is being forecast for the United States. For example as of mid-May, BNSF reported a past due backlog of 6,800 cars for agricultural product shipments for North Dakota alone.

If you would like to discuss the impact that logistics may have on your fertilizer project, please contact Schlumpberger Inc.

How Will the Potential Record Corn Crop Affect Fertilizer Pricing?

The USDA is currently leaning towards predicting a record corn crop in the United States. This has led to a decline in corn pricing, and as we know corn pricing typically has an effect on the price of fertilizer. However fertilizer pricing is also below recent years pricing, especially with regard to potash after last year’s breakup of the Russian/Belarussian cartel of BPC. These lower prices obviously mean that it is less expensive to increase crop yield through fertilization.
Corn ExportsThe United States is a large producer of corn, however it consumes the majority of this production domestically. The exports of corn only amount to about 15 percent of the US corn demand. Despite this low number, the US corn market effectively sets the price of corn in the world market. So it would be expected that low corn pricing would prevail in the world market. The first figure shows the world’s leading exporters of corn.

Corn ImportsOf course to fully understand how this effects corn, it is also necessary to look at the other side of this market, namely corn imports. The following figure depicts were that corn is being imported. From this figure we see that historically developing countries, the Middle East and North Africa account for well over 50 percent of the corn imported in the world.

Chinese UrbanizationWhy is this? Certainly the amount of agricultural products they produce is part of this, as well as growing populations in these areas. An increase in population obviously requires that more food must be produced to feed these populations. But a portion of this increase is also likely due to improving diets and increasing urbanization. Increasing urbanization is reducing people’s dependence on a lifestyle based upon agriculture and moving them to urban areas where they are often increasing their standard of living through an increase in disposable income. In examining the world’s most populous nation, China, we can see that urbanized populations have increased dramatically over the last 40 years in China. This in part has led to income growth of over 130 percent in the last ten years in China. Increasing incomes means that people can afford better diets, diets often containing more protein. An increase in the amount of protein consumed obviously means that the production of protein must increase. This of course also means that there must be an increase in the food fed to this livestock, typically coarse grains. Low corn prices mean that corn would be an obvious choice for this livestock feed. And what is the best cure for low prices? The best cure for low prices is in fact low prices. A low price tends to increase demand which in turn causes an increase in prices. Additionally as diets improve, historically these changes take a lasting hold on populations which as pricing increases should lead to overall more profitability for the producers.

Urbanization also has another effect. That is that fewer people are growing food for their own consumption which means that others must produce this food. And if fewer people are required to grow more food they are seeking ways to improve the yield. One of the most proven ways to increase yield is through proper fertilization.

So while downward pressure on corn pricing may not be an immediate positive for fertilizer use, over the longer term low prices should increase, based on demand, improving diets, increasing urbanization, and the search for increasing yields.

If you would like to discuss this, a fertilizer project, or another mining project please feel free to contact Schlumpberger Inc.

Conflicting Data

It is no secret that higher prices for agricultural commodities is typically bullish for inputs, especially fertilizers. However there seems to be a disconnect based upon recent data that has been published.
Over the last several days the Wall Street Journal and the U.S. Department of Agriculture have published data regarding food and agricultural commodity pricing. These data points seem to conflict with each other. On one hand the USDA has indicated that favorable growing conditions will likely lead to a record agricultural production. Corn is further hampered by an increase in corn stocks of 39 percent over last year, which is pushing the price of corn to four year lows. However the Fed is concerned that inflation associated with food is growing. The price index for all food items is expected to increase by three percent over last year.
These data seem to contradict one another. Lower cost of grains should translate to lower cost for all food items. But certainly the data isn’t bearing this thesis out.
To find out more about this and the effect that this might have on fertilizer projects, contact Schlumpberger Inc .

U.S. Corn Production Food Inflation

What Drives Fertilizer Use?

On first thought the answer would likely be yield or economics. Upon deeper contemplation the answer might be growing populations. However one of the other drivers for the use of fertilizer is changing diets. As standards of living increase, one of the changes that people make are improvements to their diet. For example the daily caloric intake in China has gone up by 50 percent since 1978. Within this increase is a near doubling of protein consumption, of which the majority of this is due to eating more meat. This is partially why for example Australian beef exports saw strong increases last year in beef exports.
What does this increase in meat consumption have to do with fertilizer? This increase in consumption ultimately increases the consumption of grains. Depending upon the protein type, more grain must be utilized to produce more meat. For example, for every pound of chicken, two pounds of grain are used to grow this protein. For cattle it is eight times, pork is almost four to one. Certainly this is dependent upon what the animal is fed but it takes more grain to produce more protein. This along with growing populations is why China has gone from being an exporter of corn, to an importer.
How does one increase the production of grains? Certainly one of the ways this is achieved is through the proper use of fertilization.
If you would like to discuss a fertilizer or other mining project, please contact Schlumpberger Inc.