The biggest four-month jump in corn prices in two and a half years is signaling to investors that BHP Billiton Ltd. will raise its $40 billion bid for Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer. Corn has climbed 35 percent and soybeans added 19 percent since Aug. 17 when Saskatoon, Saskatchewan-based Potash Corp. rejected BHP’s bid as too low and said it’s seeking other offers. Higher grain prices can prompt farmers to use more fertilizer to boost crop yields, pushing up the value of Potash Corp., which has 20 percent of global capacity in its namesake product BHP, the world’s biggest mining company, has also come into another $5.8 billion in cash by scrapping a deal with Rio Tinto Group this month on opposition from regulators, creating room to increase its bid, according to National Australia Bank Group Ltd. “It’s a given that BHP will raise its offer,” said Monem Salam, who helps manage the $1.7 billion Amana Growth Fund, including shares of Potash Corp., at Saturna Capital Corp. “Potash Corp. still has to make the case to BHP that the price is too low, but the wind is at their back with grain prices going up.” Potash Corp. gained 1.4 percent to $143.70 on Oct. 25 in New York trading, 11 percent higher than BHP’s bid of $130 a share. BHP may end up paying about $150 a share, Paul Cliff, a London-based analyst at Nomura Holdings Inc., wrote in an Oct. 21 report. BHP rose 9 cents to A$41.83 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Price Surge Corn has rebounded 69 percent from its June 7 low, rising 38 percent in the four months to September, the biggest gain since the same period ended March 2008. Since June, wheat has as much as doubled as drought in Russia and Kazakhstan along with flooding in Canada ruined crops. Corn, wheat and soybeans jumped the most allowed by the Chicago Board of Trade on Oct. 8 after the U.S. Department of Agriculture predicted less supply. On Oct. 15, Goldman Sachs Group Inc. boosted its 12-month forecast for corn to $6.25 a bushel from $5. It closed in Chicago yesterday at $5.6875. “Prices have rallied substantially for some of these soft commodities so it would justify a higher offer for Potash,” said Robbert van Batenburg, head of equities research at Louis Capital Markets LP in New York. “BHP will have to justify it, the onus is on them, so the longer they wait, the more commodity prices increase, the more they can justify it.” Convincing Canada BHP also has to convince Canada’s Industry Minister Tony Clement to approve the deal that’s opposed by Saskatchewan Premier Brad Wall who said a takeover would cut provincial revenue, lead to fewer jobs and forfeit Canadian control of an important national resource. Canada has until Nov. 3 to complete its review of the bid. Clement said on Friday he won’t be swayed by Saskatchewan’s call for the federal government to block the bid, adding he has yet to make a decision. Potash Corp.’s assets are a “natural fit” with BHP’s existing holdings in Saskatchewan, which include the Jansen potash project, BHP has said. Jansen may cost $10 billion to develop, according to Goldman Sachs & Partners Australia Pty. BHP Chief Executive Officer Marius Kloppers, 48, has said he will walk away from the Potash bid, the biggest acquisition deal this year, if it’s not in the best interest of shareholders. Amanda Buckley, BHP’s Melbourne-based spokeswoman, declined to comment. Full Price? “I think $130 a share is a full price for the business,” Neil Boyd-Clark, an executive director at Arnhem Investment Management Pty that manages A$5 billion in funds including BHP, said by phone. “Short term commodity price moves should not necessarily impact your thinking about the value of the business in the long term.” Potash consumption slumped last year after crop prices plunged, with wheat traded in Chicago, a global benchmark, falling to $4.255 a bushel in June from a record $13.495 in February 2008. Demand for the nutrient, mined from underground mineral salt deposits left by evaporated seas, will rebound to 50 million metric tons this year from less than 30 million tons in 2009, Potash Corp. Chief Executive Officer Bill Doyle, 60, said Aug. 17. He forecasts demand at 55 million tons in 2011. Saskatchewan potash prices rallied to $374 a ton in the second quarter, according to Salman Partners. Australia & New Zealand Banking Group Ltd. forecasts the fertilizer will reach $500 a metric ton within four years as grain demand rises in China and India. “Higher fertilizer and grain prices mean the premium that BHP is offering isn’t going to be enough,” said Sadiq Adatia, who oversees about C$12 billion of assets as chief investment officer at Russell Investments Canada. “BHP will have to come back and put more on the table.” To contact the reporters on this story: Madelene Pearson in Mumbai on mpearson1@bloomberg.net; Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net Christopher Donville in Vancouver at cjdonville@bloomberg.net. To contact the editor responsible for this story: Andrew Hobbs in Sydney at ahobbs@bloomberg.net.

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