Global farming cutbacks in a rotten economy hit fertilizer producers in the pocketbook
Potash producers, who were rolling in profits a year ago, are now seeing profits drop by half as farmers cut back on enriching their fields during the current global economic crisis.The world’s biggest potash producer, Saskatchewan’s Potash Corp., saw its first-quarter 2009 profits drop 46% to $308.3 million or $1.02 per share, compared to $566 million ($1.74/sh) during the same period a year ago.The profits were largely achieved on the strength of potash pricing as sales declined for all three nutrients (potash, phosphate and nitrogen) and prices for nitrogen products and solid phosphate fertilizer weakened substantially."As the global economic uncertainty that began in the second half of 2008 continued into 2009, most customers for the three primary nutrients appeared to exercise financial caution and drew down inventories while waiting for market stability," PotashCorp noted.Meanwhile, farmers in the Northern Hemisphere are expected to reduce their use of fertilizer, joining farmers in the Southern Hemisphere who reduced their fertilizer consumption in the fourth-quarter 2008."Potash movement was extremely slow in the first quarter as all major offshore markets destocked inventories and many buyers waited for the outcomes of contract negotiations with China and India," PotashCorp said.The good news is that average realized potash prices in the first quarter of this year were almost $250 per tonne higher than in the same quarter of last year.In North America and around the world, "farmers and dealers appear to be waiting for potash prices to follow a downward trend similar to phosphate and nitrogen," PotashCorp noted. "We believe these expectations are misguided, as the fundamentals of potash globally are very different from the other nutrients."PotashCorp President and CEO Bill Doyle told analysts Thursday that the global market for potash has already declined by 12 million tonnes, while the market for phosphate dropped 10 million tonnes. Nitrogen demand declined by 11 million tonnes."If potash prices do not remain at levels supportive of capacity reinvestment, " PotashCorp warned, "the necessary production may not be available when the world needs it, leading to the possibility of future prices considerably higher than those seen recently." The company said it would invest Cdn$7 billion to raise PotashCorp’s production capacity to 18 million tonnes per year by 2014. "We expect to fill a significant amount of the world’s demand growth over this period.""With customers nearing the completion of massive destocking efforts in all major markets, we expect a more normal second half of 2009 followed by a rush to refill the pipeline and feed necessary consumption growth in 2010.The PotashCorp CEO declared "2010 is going to be a big rebound year and we need to be ready for it.Doyle also told analysts that he anticipates negotiations with China will begin at the end of May and probably be concluded at the end of the second quarter.