“Agflation” Motivates BHP’s Aggressive Pursuit of Potash

While many in America fear deflation, Australians are relatively convinced that inflation in their country has returned to historical norms. So, perhaps it is no surprise that it is an Australian company, BHP Billiton (BHP), making an aggressive “anti-deflation” bet by presenting Potash Corp. of Saskatchewan Inc (POT) with an all-cash, hostile take-over bid.

This bid has come amidst screaming headlines that “agflation” is alive and well with wheat, corn, sugar, coffee, cocoa, and other agricultural products hitting historic highs at various times in the past year. It is easy to dismiss these moves as the cyclical outcomes of transient weather and other temporary supply disruptions. However, this unfolding M&A drama suggests otherwise. Potash prices have been volatile and have diverged between emerging market areas and more mature economies, but increasing pressures on agricultural production appear to provide firm support for potash prices for some time to come. Moreover, we live in a world where more people than ever are gaining the economic means to acquire better and better foods.

We are nowhere near a point where the Federal Reserve will consider agflation a threat to its overall inflationary outlook, but note well that three years ago former Fed Governor made a speech indicating that headline inflation does factor into the Federal Reserve’s decisions given it reflects actual pressures to household budgets. Stay tuned.

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