Hi there. It's Tristan Lovegrove here. Thank you very much for joining our potash outlook briefing today. I'm joined by Hugh Mackay, our chief economist, and Paul Burnside, who leads our potash reserve research, as well as Raghood, president Minerals Americas, and Giles Heller, Vice President Potash. We're providing this briefing today recognizing that we have a decision ahead of us on Jansen.
A number of investors have asked us to bring them up to speed on the commodity ahead of them. The decision on Jansen itself will, of course, depend on more than Potash's fundamentals. Rag will provide some comments in this regard as we close out after the q and a session. In a moment, I'll hand over to Hugh and Paul, after which we'll move to q and a. For those who want to ask a question, you will have to register using the q and a teleconference link on the invite and on the screen at the moment and dial in using the phone number provided upon registration.
This allows you to watch the video via your computer, but also listen, via your phone to be able to ask the questions for the Q and A session afterwards. Over to you, Hugh.
Thanks, Tristan, and welcome, everyone. It's a pleasure to be here with you to discuss the outlook for potash. We have two simple objectives today. Firstly, to share our views on the medium and long term attractiveness of potash. Second, to provide some practical insight into the fundamentals of the commodity and the industry for those of you to whom it is relatively new.
The key messages that I hope you will take away on the outlook are these. Potash is a future facing commodity that is positively leveraged to global megatrends, including decarbonization. Base demand is underpinned by very reliable drivers with attractive, plausible upside readily identifiable. While the industry is currently subject to excess capacity, the demand trajectory is expected to absorb this overhang over the course of this decade. When that process has played out, with the market very likely to continue expanding in the following decades, a durable inducement pricing regime centered on solution mining in the Canadian Basin is the most likely operating environment for the industry in the 2030s and beyond.
The fact that higher quality conventional development opportunities globally are mostly already executed underscores this view. At BHP, we are very deliberate about the commodities we choose. We are especially deliberate about those commodities where we choose to grow. Those commodities which are clearly future facing are the natural place to see growth in today's environment. When a future facing commodity is also part of a large value chain, is expected to transition towards durable inducement pricing, is offering attractive upstream operating margins in absolute terms, margins that are significantly more favorable than those available in the downstream segments, thus matching our capabilities.
And it is differentiated from the rest of the portfolio. See that differentiation expressed through demand drivers, the geographic distribution of the resource, the location of customers, or the way that it leverages the decarbonization opportunity. And it will have our utmost attention. You can see from this slide that potash stands very well on those criteria. Let's begin with differentiated demand drivers.
This slide shows representative curves depicting the intensity of use of upstream products from the three most important value chains in the BHP portfolio. From right to left, energy, metals, and fertilizers. Each is integral to the functioning of our society. The traditional drivers of energy and metals demand are well known. Urbanization, industrialization, electrification, motorization, consumerization.
Potash on the other hand sits within a value chain where the fundamental drivers are more basic, slower moving, and boringly consistent across decadal time spans. The number of mouths to feed, the scale and scope of diets, and long run trends in soil fertility, and the associated interplay with fertilizer application rates. Given the relative simplicity of these basic drivers, it should come as no surprise that the historical record of population growth, crop production, and potash demand provides a very reliable basis for projecting future fertilizer needs. All in all, population is up roughly 2.5 fold since 1960.
Crops are
up 3.5 fold, and potash demand is up 4.5 fold. These relationships are as law like as it gets in the commodity domain. There is a paradox here though. While the demand trend is extremely reliable over five to ten year periods, potash demand is at times subject to considerable year to year variations due to shifting farm economics, weather, policy, and the ability of soils to retain potassium from one season to the next. We will come back to this point later in more than one context.
Under our 1.5 degree scenario, potash stands to be a winner with increased biofuel production and intensified competition for land due to afforestation. However, the impact of deep decarbonization on potash demand is best characterized as attractive upside on top of an already compelling demand case. That can be easily seen from the robust demand emanating from the other scenarios depicted on this chart. Further, it does not generate some of the negative environmental impacts of the other two major fertilizer nutrients. The major issues here, of course, are leaching into and polluting waterways and the release of greenhouse gases in the application process.
Excess nitrogen and phosphorus flows to the biosphere and oceans have been identified as critical planetary boundary parameters. Turning now to the market. The post World War two history of the potash industry can be summarized as a series of four waves. The first began around 1960. The most recent of the four has arguably just got underway.
So let me quickly explain the chart. The orange line is the change in production capacity over the five years prior to the date in question, inclusive. The columns are the same metric for demand. The blue line is price. The first forty years cover two waves.
They were both instigated by major supply impulses. These impulses were then followed by extended periods of demand catch up. Wave number one was characterized by the opening of the enormous Saskatchewan Basin in Canada. Wave two was characterized by the disruptive entry of ex Soviet capacity into the world market after the collapse of the USSR. Wave three, dating to the early two thousands, was, by contrast, demand led.
Producers were forced into catch up mode for the first time in at least half a century, and plus prices blew up sharply. Ultimately though, supply catch up to the price signal proved excessive, and now demand is in catch up mode once again. Calendar 2020 was a strong installment on that front. What then might Wave four bring? The first question is, of course, when will excess capacity be absorbed?
The second is what might be expected in terms of inducement pricing when new supply is required to balance the market. The third is what sort of supply response is most likely under inducement pricing. Will a new supply led wave emerge driving pricing back down towards short run marginal cost for an extended period? Or will we see a durable disciplined inducement environment with the possible additional benefit of occasional fly out price. Let me address each of these in turn.
This chart provides an indicative range of demand outcomes by way of round figure CAGRs, an extension of the ten year linear trend, the average forecast of specialty consultants, and the midpoint of incumbent producer Nutrien's publicly stated range of 2% to 2.5% for the 2020s. We have superimposed our estimate of achievable production across the demand range. Paul will define and quantify what we mean by achievable production shortly. Our central view is that demand will have caught up by the late 2020s or early 2030s. The chart illustrates clearly that this timing is not controversial.
It is essentially consensus. Prior to structural balance being achieved, we expect prices to cycle at or slightly above forward looking estimates of short run marginal cost, which is similar to the average prices seen since 2014. This does not preclude the possibility of price upswings. We are in the midst of one right now after all. It just implies that while excess capacity is present, prices are unlikely to sustain at inducement levels.
Once structural balance is achieved though, with demand continuing to move upward, new supply will obviously be required. At mid case macro assumptions, our estimate of the inducement price for the most likely consistent source of greenfield supply that we have identified as a large bench of Canadian resource suitable for solution mining turns out to be similar to the average price realized over the last dozen years. Why emphasize solution mining? Because it matters. This is a material factor for assessing the future characteristics of the operating and inducement cost curves.
Solution mines use significantly more energy and more water than conventional mines. This comes unavoidably with higher operating costs, a disadvantage that will only increase under higher carbon pricing. Sustaining CapEx is also higher due to the ongoing need to replace old cabins. The vast majority of the first quartile of the operating cost curve are large scale conventional mines. Globally, the lowest cost operations today are around $100 per tonne FOB, not mine gate, FOB.
These are conventional operations. Currently, operating solution mines in Canada are presently in the vicinity of $180 to $210 per tonne on the same basis. Simply put, even under short run marginal cost conditions, there is some tilt in the cost curve, whereby large scale conventional operators can earn substantial margins. Moving on to the long run, the potash inducement curve is steep, due in very large part to the underlying capital intensity of projects. Solution mining in Canada is expected to set the long run marginal cost for the industry.
Other potential candidates for this role are either too small or disparate to serve as an effective bench to anchor long run trend pricing. Canada's solution mining bench is still available at scale, simply because conventional opportunities with their favorable operating cost curve position have been rightly prioritized for development. In bulk mining, you do not save the best for last. That is why we emphasize the scarcity of high quality conventional development opportunities throughout our remarks. We estimate that a trend price somewhere in the mid $300 per tonne region will be required to induce a material portion of this Canadian bench into production.
Now let's talk about fly up prices for a moment. Our view is that average prices for the period 02/2013 are a reasonable proxy for what could emerge under a future episode of fly up pricing in this industry. So why then might prices fly up? The first reason is that by the time the industry reaches the balance point we discussed above, there will be few high quality conventional development opportunities available should demand then surprise to the upside. Which begs the question, why then might demand surprise to the upside?
The future yield impacts of soil depletion. That's why. We know natural soil fertility has declined. What we do not know is when this fact will begin to influence farm behavior and how smooth or abrupt the change might be. If farm behavior were forced to change overnight due to a disruptive event like a major crop failure, that in turn could lead to a stepwise increase in potash demand.
That would take producers a considerable time to catch up to, given the maturity of these large but venerable basins, where the vast majority of the available brownfield and lower cost greenfield opportunities were executed in response to the last price upswing. To be clear, we are not planning for precisely the above scenario to occur or bold enough to time it, but we are certainly cognizant of the possibility. To us, when seeking to identify the skew of risk around the central case, the upside case seems like a far more reasonable hypothetical than the one where a new supply led wave emerges. The geological and agronomic cases for this back to the future vision of potash, which we do encounter from time to time. Well, those cases are weak.
That then is our summary view of the potash outlook. Paul, over to you.
Thank you. Okay. So for the next section of the presentation, I'd like to talk about potash fertilizer and its place in the global food supply chain. And then we'll move on to how we build our supply and demand forecasts. So let's start with some key facts and figures, about the global agriculture system.
Now I won't go through each chart here in detail, but there are some important points that I'd like to draw out. First, around one third of global land is used for agriculture, but pasture land for livestock is actually twice the size of cropland. We grow crops for the four f's. So that's food, feed, fuel, and fiber. As shown in the middle chart here, nearly 80% goes directly into food with a further 15% fed to livestock.
Production of biofuels contributes less than 10, but it is much more significant in some areas, particularly The US and Brazil. Crop land per capita is declining and has been declining for many decades. So that means that it's yield, not area, that drives incremental crop production. The chart on the right shows that big improvements in crop yields have been made over the course of the last sixty years, but there are still huge regional variations. So as an example, corn yields in The US are nearly double those in China and three to four times those in India.
So separate from efforts to further raise yield potential, there's still huge opportunity to achieve higher crop production by closing the yield gap between average and optimum yields today. So if crop yield is so important, how do we go about increasing it? Well, crop yield is governed by a complex web of many interacting factors, some of which are physiological and some of which relate to external conditions. The potential yield of a crop, so that's the yield in perfect control conditions, is governed by genetics. And we seek to increase potential yield through development of new cultivars, either by crop selection or through bioengineering.
The attainable yield takes into account the external environment, aspects of soil type, climate, and topology. So it's the best possible yield given those environmental conditions. Then the actual achieved yield is further dependent on the availability of water and nutrients, the vagaries of weather, and the presence of pests and disease. So some of the limitations on yield are either partly or wholly within the control of the farmer, and that includes the adequate provision of nutrients. Potassium, which has the chemical symbol k, is one of the many nutrients that are essential to plant growth.
So potassium is one of the building blocks, if you like, of a growing plant. It's got a role in many physiological processes. It can't be substituted with other nutrients, And the bigger a plant grows, the more potassium it needs. And potassium does doesn't just contribute to yield. It also aids drought tolerance and improves crop crop crop quality as well.
But as I've said, potassium is is just one of many factors that influence crop yields. So if potassium availability isn't yield limiting, then adding more won't have any effect on yield. Or to look at another way, yields might be improved without adding any extra potassium, but conversely, potassium can become limiting over time even at a constant yield if the potassium in the soil isn't being replenished. Now the most important nutrients that plants draw from the soil are nitrogen, phosphorus, and potassium, each of which has its own specific functions. So fertilizers then are materials that contain these essential nutrients, and modern agriculture relies heavily on what are known as mineral or chemical fertilizers that are manufactured from inorganic sources and contain high concentrations of nutrients.
Our soils contain natural potassium minerals in widely varying amounts, but potash fertilizer is commonly applied to ensure that plants can access all the potassium that they need. And by potash here, I I mean generically any fertilizer containing potassium, but the term is often also specifically applied to potassium chloride or muriator potash, which I'll refer to as MOP. So MOP is by far the most common potash fertilizer, and MOP fertilizer products are usually specified with reference to their nutrient content, their particle size, their color. And at Johnson, it's designed to produce red standard and red granular MOP with a min minimum potassium content of 60%. There are other forms of potash that include potassium sulfate and various potassium magnesium fertilizers.
These are the products that typically more expensive per unit of potassium nutrient and used either when a low chloride product is required or for their additional content of secondary nutrients like magnesium. But they're consumed in much smaller quantities. So MOP and its derived products account for more than 90% of all potash fertilizer. About three quarters of MOP production comes from underground ores, and usually that's sylvenite, which is a mix of potassium chloride and sodium chloride. And ore grades are much higher than you'd find for metallic ores, so silver knight can contain as much as 40% of potassium chloride.
And the most common form of extraction is conventional underground mining, but solution mining is also possible. And recovery is usually done through flotation. So that yields a product that is pink or red and usually around 95% pure. And Janssen is designed to employ this mining and flotation route. It's simple and established technology.
It's low cost, and it's energy efficient. About 40% of MOP is made via crystallization from brine. So this can come from a natural brine deposit or a solution mine or by dissolving mined ore. And this route makes a white product, although it can be dyed red, and it's usually at least 95% pure, but you can get higher purity product with this route as well. But it's more energy intensive than flotation, making higher OpEx and more sensitive to carbon tariffs, and it's also much, higher in water consumption.
MOP is produced as a crystalline powder, which you'll see called fine or standard or coarse depending on the particle size. And powder MOP can be compacted to make granular grade. Granular attracts a small premium, over standard that compensates for the the slight additional processing cost. And as I've said, Johnson's designed to produce both standard and granular grades. More than 90% of MOP is used as fertilizer.
So it can by be directly applied to fields as is or combined into multinutrient fertilizers or chemically converted into other forms of potash. Now the figures on this diagram are are approximate, but you can see that the products planned for Janssen stage one provide access to the vast majority of MOP demand. Supply is highly concentrated geographically according to the location of natural resources. So Canada accounts for roughly a third as do Russia and Belarus together. Add in China, Israel, and Germany, and you have around 90% of production.
But there's limited geographical overlap between supply and demand, and MOP is actually the biggest internationally traded fertilizer commodity by volume. China, The US, Brazil, and India together account for about 60% of demand. And standard and granular grade have roughly equal global market share, but granular is favored much more in The Americas where bulk blending of granular fertilizers is commonplace, while standard, both the direct application and for the manufacture of compound MPKs, is favored in Asia. So potash trade flows then are highly globalized. You have major export routes coming from the Pacific Northwest, the Baltic Sea, and the Red Sea, and most exporters ship to all the major import markets.
And for MOP, it's Brazil, not China, that's the biggest import market. Now another point to note is that supply chains are long. Now sales are commonly made on CFR basis, so that's with the producer managing seaborne freight. But after the potash has arrived at the import point, it may change hands several times in market. So between importers, they've got national and regional distributors, blenders, retailers before it finally reaches the field.
Some potash producers have some assets downstream in the supply chain, but most focus on selling MOP upstream where margins are highest. And this also suits BHP's strengths in cost efficient bulk materials distribution. Now let's take a moment here to think about the emissions footprint of that supply chain. I'll also make some comparisons with nitrogen and phosphate fertilizers here, which are are very different potash fertilizers in terms of their environmental impact, both in their production and in their use. Flotation based MOP is a dry bulk material.
It's mined from high grade ores. It requires only basic beneficiation to yield the finished product. So as such, scope one and two emissions are of a similar magnitude to to other box. It's also the most concentrated form of potash fertilized fertilized available, which minimizes the impact of on wood transportation, and there's no energy intensive downstream processing that's required. Now the biggest source of scope three emissions for the fertilizer industry as a whole is the release of c o two and n two o when nitrogen contained fertilizers are applied to fields, but there's no such emissions associated with the use of potash.
And it also doesn't pose the water pollution risk that you have from nitrogen phosphate fertilizers either. More generally, the appropriate use of fertilizers is all about the sustainable intensification of agriculture, so getting more from the cultivated land that we have. And if we can do that, we can tackle the huge amount of emissions that come from deforestation and other unsustainable agricultural practices. So for us, you can see that potash ticks a lot of boxes in terms of low emissions, low pollution, and sustainable development. Now finally, in this section, let's take a look at how potash is priced.
So it's not exchange traded, so there's no widely accepted single global benchmark that everyone refers to. Instead, what we have are a number of specialist publications that monitor transacted prices through conversations with buyers and sellers. Because most potash sales are made on a delivered basis, you'll see price benchmarks like granular MOP CFR Brazil or standard MOP CFR China. Regional differentials aren't always quick to arbitrage. In fact, today, we've got a particularly wide range in prices between The Americas and Asia, and it will likely take a while for these benchmarks to to converge again.
Now these published benchmark prices have the advantage of being prompt and they're high frequency, but they don't readily give you an insight into net realized prices. So if you want to estimate a mine netback, excuse me. So if you want to estimate a mine netback from a particular benchmark, there are a couple of things to consider. So firstly, you have rebates or discounts that suppliers often offer against the headline selling price. And then there's the delivery costs, so ocean freight, port transit, and the inland transportation from the mine.
On the chart here, we can see, the import price of MOP to Brazil against the roughly annual contract price that gets fixed for imports into China. In the shaded area shows the implied range of netbacks FOB Vancouver after deducting ocean freight from from these and other delivered benchmarks. There's not actually much business that's transacted, FOB Vancouver, but it is useful to have a single reference price point for our purposes. Now the lower line is the Mindgate netback that Neutrin has reported. So that's a realized price.
Now such, it's gonna be net of any discounts and rebates. And in the case of offshore sales, it's also net of net of their marketing costs. And it also reflects the geographical makeup and mix of grades of Nutrien sales in in any given quarter. So the takeaway here is just be careful to distinguish between different price series. I think whether it relates to a specific grade or a weighted average, whether it's taken as a headline price or net of discounts, and where along the supply chain does the the price refers to.
Okay. So I hope I've set the the context for you by taking you through some of the basics of how this industry operates. Now I'd like to turn to the outlook, and we can we can kick off with demand. So in the short term, potash demand can be pretty volatile, often, several million tons above or below trend. So there's significant year to year fluctuations in on farm consumption.
Thanks to the fact that potassium stays in the soil after it's supplied. So weather conditions and farm economics are key to short term buying decisions. And then you have stock change throughout that long supply chain that adds another layer of variation on top. But our focus is on what shapes potash demand over the long term. And to understand this, we need to consider factors all the way from population through crop production, fertilizer requirements until we get to MOP demand itself.
Now we know that ultimately most fertilizer is being used in order to meet food demand. And it's population, so how many people there are, that's the most important socioeconomic driver here, followed by how much they eat and to a lesser extent, what they eat. But these trends are relatively predictable and slow moving, particularly over the course of, a single generation. We think the greater uncertainty in potash demand over the long term actually comes from the second step shown here. So that's the contribution potash potash fertilizers to total crop uptake of potassium.
I'll come back to this in a moment. The final step here is relatively simple. So potash fertilizer requirement is actually a fairly close proxy to MOP demand, at least on a on a trend basis. And if you account for different types of primary potash and the demand from industry, then you end up with your MOP demand forecast. So let's take a look at the first two steps in a little more detail.
Now required global food supply is a function of population, food intake, and the amounts of waste within the food supply chain. Remember that nearly 80% of crop production goes directly into food supply, and then a third 15% is used for animal feed. Although crop cultivated crops is just one source of animal feed, and you've got lots of others including pasture and fodder and lots of waste or residue products from the food supply chain itself and industrial processes like ethanol production. But industrial crops are much less significant. So it's population and per capita food intake that are the biggest influences over the quantity of required crop production.
So having established a forecast of crop production, the second step is to estimate how much potash will be required to support that production. A k uptake is the amount of potassium that a crop draws from the soil. So this depends on the type of crop and the crop yield. And farmers can apply potassium in the form of potash fertilizer or in low lower concentration organic matter. But the annual potassium balance is the difference between the amount of k that's applied and the amount of k that's removed.
The negative k balance or a deficit implies that native k in the soil is being depleted. Now soil chemistry is a very complex subject, but this kind of reserve of native potassium that's in the soil can vary hugely depending on the soil type, how it's been managed historically, and how intensively it's farmed. So there are big variations at the local level, but as a whole, global agriculture has historically relied heavily on effectively mining native potassium from the soil. And that means even land that has needed little potash in the past may find yields become limited by k k availability over time, and rising yields increase the crop k requirements and so accelerate this process. Now in the short term, farmers can make a call when to cut potash application and rely more on the k reserves in the soil.
So that's one of the drivers of short term demand volatility. But over the long term, it's agronomics that dictate potash use. Now exactly when and how quickly a shift in behavior will occur across the world's different and varied agricultural regions is is uncertain. But if potash has to shoulder a greater share of crops uptake of k, it means that intensity of use, by which I mean the average amount of potash that's supplied per ton of crop production, will also have to rise. In fact, this is already happening.
And at a minimum, I'd expect the trend to continue, but to really tackle soil depletion, it actually needs to accelerate further from here. And we can see some of these ideas in this chart, which you presented earlier.
So
when potash fertilizer demand rises faster than crop production, it implies rising intensity of use. And you can see that prior to February, potash fertilizer demand increased only slightly faster than crop production. So as k crop k uptake was increasing, so too with the annual k deficits of the world's soils. But since February, this has started to change with potash is really pulling ahead of crop production. So while socioeconomic drivers are slowing down in percentage terms, this is being offset by the agronomic requirement for higher intensity of use.
Now global agricultural output today is about 9,000,000,000 tons. So even a 100 gram per ton increase in potash intensity use corresponds to nearly a million tons of additional global demand.
Thanks very much, Paul. And then you can take a well earned break for a few minutes. So since February, we estimate that around three quarters of incremental potash fertilizer demand globally can be attributed to increasing crop production. One quarter has been attributable to increasing intensity of use. So even if you were to completely reject the argument for a continued increase in intensity of use, Crop production alone would still support about 15,000,000 tonnes of incremental potash demand, MOP equivalent, over the next twenty years.
A continuation of the existing intensity of use uptrend would add another 12,000,000 to 13,000,000 tonnes on top of that. And if, as we consider is very realistic, it becomes necessary for major regions to significantly lift application to tackle negative K balances, then intensity of use gains would accelerate and there would be substantial upside beyond these figures. We believe that unsustainable farming practices will be subject to Stein's Law, which states, if something cannot go on forever, it will stop. Hopefully, these practices will stop due to improved farmer education, policy support, and technology adoption. The alternative with a global farm system sleepwalks into a yield shortfall would have far reaching negative consequences.
That should be avoided at all costs. Now here we present demand ranges for the world and the major regions for the 2020s. There's a lot of data here. The key takeaways are these. Growth in MOP demand this century has been driven by the major agricultural systems of Asia and South America, particularly India, China, and Brazil.
Overall, we expect aggregate demand growth in these regions to continue at a healthy pace, but to ease somewhat from the rapid 4% plus seen over the last twenty years. In Europe and North America, there has been very modest MOP demand growth over the last twenty years. But the big increases in yields that have been achieved over this time have correspondingly increased uptake of K. In The U. S, K balances have become increasingly negative, enabled for now by some naturally highly fertile soils.
At some point though, this is going to have to be addressed with higher application rates. Of course, the timing and pace of such a correction is difficult to predict. We conservatively range global demand growth over the next decade roughly between 13%. Historical growth since 2000 has been about 2.7% per annum, with the most recent ten year period coming in around 2.4. Note that the growth rates will vary a little according to your choice of base year.
For comparison, the average growth forecast from the specialty consultants is about 2% per annum, while Nutrien has disclosed that it expects demand of 2% to 2.5% in the 2020s. There are several big picture themes that frequently come up in conversations about potash demand. These issues are complex, and regional context is often just as important as a global trend. There's a slide with some further commentary in your packs. But let me take you through some of the key points at a really high level, recognizing we are really not going to do justice to these things, in a forum such as this one.
In the case of climate change and the adoption of precision technologies, we see both of these principally as opportunities rather than threats. How can potassium help make agriculture more resilient to climate change? We know it has a role to play in drought tolerance. How can technology aid better evidence based decision making on the farm, Helping growers identify nutrient deficiency and take a data driven nutrient balance approach would be a huge benefit. I should also point out here that there are big differences between the use of nitrogen, phosphate, and potash that are relevant for the impact of technology.
In situ losses of K are much lower than for N and P. So the potential for physical efficiency gains from precision techniques are also less. We also know that potash is more often underapplied than nitrogen is. The K deficiency is harder to spot. And the depleting potassium reserves in soils are a hidden danger of future crop yields.
Technology definitely has a role to play in meeting each of these challenges. Additionally, current adoption of precision ag techniques is focused on regions where potash application rates are already quite high. Bringing lower technology farm systems in populous emerging markets up the sophistication curve can only assist to raise intensity of use on a global scale. I would remind you at this point that India's corn yields were roughly 30% of those in The U. S.
In 2019, while in the same year, potash intensity of use in India was 34% of The U. S. That gives you a sense of the gap between the productivity frontier in agriculture and where a typical developing economy sits. In the case of dietary change, we don't expect to see meat disappearing anytime soon. Add to that the fact that land pressures are driving intensification of livestock, I.
E. There is less grazing. And that means feed crop demand is going to be rising for a while yet. But let's assume for a moment that we did get to a point of zero meat. Feed demand worth 15% of total crops goes away.
But so too does the manure that provides around one fifth of crop k uptake globally. One fifth of k uptake. That means much higher potash intensity of use to sustain the remaining problem. And the food portion of which will have to expand to replace the lost calories that were coming from meat. Now most of you will know that's not a one for one due to the inefficiency of meat calories, but it is an effective offset.
And let me remind you, we lose the manure. Somewhat counterintuitively, potash demand may well absorb overnight veganism with aplomb. But what about food waste? Another big problem for society. There are large upstream losses in developing countries and large downstream losses in the developed world.
First of all, we need to stop it getting worse. It is reasonable to expect that improved infrastructure will reduce distribution losses in developing economies over time. Offsetting that, without a decoupling of the historical link between rising living standards and behavioral changes with respect to food consumption, there will be escalating consumer waste in those same countries as incomes rise. Lifestyles are altered through urbanization and the consumption of perishable foods increases. And can we reduce the very high levels of consumer waste we observe today in Europe and North America?
Some energetic and ingenious startups are trying to do just that. It is, however, a daunting task given how dramatically behavior needs to change. Longer term, making our food system less wasteful would make a vital contribution to feeding the world at an affordable price, while limiting emissions from land use. But so too will the optimization of crop production in the first place, and that's where potash comes in. The bottom line remains that if we need to grow more crops that a larger wealthier population will require, then those crops will require more potassium.
For a long time, we've consciously or unconsciously depleted soils to make up a lot of that incremental K requirement. But the rising intensity of use we've seen over the last decade indicates that the trend is shifting for
the better,
albeit there is a long way to go. Back to you, Paul.
Okay. So we've talked through our approach to understanding the prospects for demand. Now let's switch to supply.
Just to
remind us, the majority of MOP production is from underground ore deposits in Canada, Russia, Belarus. Much of the remainder is extracted from natural brines in China and the Dead Sea. And today, there are only two large scale solution mines, both in Canada. Most potash operations produce between about one or one to 4,000,000 tons. The mines in Canada mostly date back to the period of rapid development in the nineteen sixties and seventies, while much of the capacity in Russia and Belarus was built in the Soviet era.
Now in addition to this extent supply, there are 10 major MOP projects under construction or already ramping up. The four of these are replacing exhausting reserves and will feed existing refineries. But if successfully executed together, all these projects will add about 10,000,000 tons of net incremental supply versus calendar 2020. And this doesn't consider resource depletion. So potash mines are generally long, but we do expect to see significant depletion in Russia, Belarus, and China over the twenty thirties, forties, and fifties.
That means that producers, if indeed they have available resources to do so, will need to build additional mines as in fact some are already doing if they wish to simply maintain their existing production levels. Now I'd like to clarify some of the terminology around capacity, which can sometimes be a source of confusion. Unfortunately, there's no clear single definition by which different producers report their capacity if indeed they reported at all. So you might see nameplate capacity, which is sometimes based on annualizing a short term sprint capacity, or it might fail to reflect limitations that have appeared over time. Accounting for this, we estimate that what we call operable capacity today is around 82,000,000 tons.
But unplanned downtime, which can be for a whole variety of reasons, means that across the industry as a whole, output is usually lower than than that. Now allowing for such disruption, we estimate the achievable production of the industry today at about 76,000,000 tons. And then we have some capacity that is under voluntary curtailment, most of which is in Canada, and a little that is currently uneconomic. And that takes us to an expected production after estimating all limitations on output of only 71,000,000 tons last year. And actual production in calendar twenty twenty was nearly 70,000,000 tons, which shows you just how hard available capacity was being run to meet the big jump in demand that happened.
So looking forward, there's clearly still spare capacity that can be reutilized, plus there's new capacity either under construction or already in ramp up. Now working on the assumption that all of this becomes available, we think that future achievable production could be up to 86,000,000 tons without Johnson or other capacity investments coming in. But that's without factoring in depletion in the twenty thirties and beyond. So coming back to this slide that Hugh showed earlier, at linear trend growth, that 86,000,000 tons of supply will be absorbed by the late twenty twenties. Of course, the pace of demand that we've seen over the last eighteen months keeps up, it's actually gonna happen much sooner than that.
Or if we take the average forecast of three specialist analysts, it happens in the early twenty thirties. But sooner or later, further capacity is going to be needed. So the next question is where can that incremental capacity come from? The major production areas in Europe, the CIS, The Middle East, and China are mature. And greenfield opportunities and even brownfield expansion options are dwindling.
So there may be some sites that can eke out some brownfield expansion, but a lot of the low hanging fruit was all taken in the last investment cycle. Then you have recent greenfields, which in some cases have phase two optionality that they might execute in future. But I think it's likely that the next round of investment we see in this industry is gonna be tilted much more towards greenfield development than what we saw in the February. But there are some individual projects outside the major basins that maybe we'll see in production one day. But from a multi decade perspective, they aren't the answer to long term demand growth.
But Canada is home to more than half of the global reserve base and is able to support multiple new new mines in the future. And it's this large venture resource that we think is going to be the biggest contributor to meeting demand over the long term. And that will likely include the development of relatively high OpEx solution mines in the southern part of the Saskatchewan Basin. And we think it's reasonable to expect that the through cycle trend price of potash in the long term will reflect the cost of inducing more of this bench into production. Now prices will always fluctuate.
Right? Sometimes they're gonna be driven down to short run marginal cost. Sometimes they'll be pushed up by tight supply and profitable farm economics. Structurally though, when you look at the availability of resource for future expansion and the growing size of the market, you see it's very unlikely that the industry ever returns to the conditions that we saw in the second half of the twentieth century. And over time, we expect trend prices that will support development necessary incremental greenfield supply.
Thank you, Paul. We hope that our remarks have provided you with some useful insights. To recap, potash is a future facing commodity. Base demand is reliable with attractive plausible upside. Excess capacity is expected to be absorbed over the course of this decade.
Beyond the 2020s, we expect the long run marginal cost of the Canadian resource suitable for solution mining will set long run prices. The alternative bookend trading at short run marginal cost more often than not due to a perpetual supply overhang is far less plausible given the narrow range of high quality conventional development options the industry has available to it. Neither the geological nor the agronomic case for this view stack up on a probabilistic basis. And with that, I will hand back to Tristan, who will introduce the Q and A.