Despite production cuts, some predict potash industry will rebound quickly

TORONTO (The Canadian Press) - Deferred fertilizer purchases, unresolved contract negotiations with China and India, and poor weather conditions in North America are making 2009 a difficult year for the potash industry.
But industry players say demand can only be deflected for so long before crops start to suffer, and expect 2010 to be a banner year for fertilizer producers as customers flock back to the market.
Potash Corp. of Saskatchewan has revised both its production and second-quarter earnings guidance in response to deferred customer purchases and lower realized prices.
The world's largest potash producer said Thursday it now expects to earn roughly 70 cents per diluted share for the quarter ended June 30, down from an initial target of $1.10 to $1.50 per share.
It also reduced its 2009 output by 800,000 tonnes to bring curtailments this calendar year to 4.7 million tonnes and total curtailments to 5.5 million tonnes since August 2008. Many of its mines will be shut down for an additional four weeks this summer as a result.
The company blamed "an extremely slow U.S. spring season," caused by unusually cool, wet weather, and unresolved contract negotiations with India and China for the curtailments.
Potash Corp. isn't the only company to cut its forecasts as farmers worldwide delay fertilizing their fields.
Europe's largest potash producer, K+S AG, recently cut its forecast for global potash sales from 50 million tonnes to 40 million tonnes in 2009 and from 60 million tonnes to 50 million tonnes in 2010.
Global demand for potash has fallen as farmers do without the commodity in response to the recession and lower food prices.
In addition, a late start to the growing season in the United States and severe drought in Western Canada are likely to lower North American crop production this year.
Major potash customers, China and India, have responded to the uncertainty in potash markets by delaying signing a new contract for the commodity.
Canadian fertilizer companies such as Potash Corp., Agrium Inc. of Calgary and Mosaic Canada have negotiated long-term deals through marketing company Canpotex Inc. with China, India and other buyers.
Canpotex is the world's largest exporter of potash fertilizer, delivering between nine million and 10 million tonnes a year of Saskatchewan potash to global buyers.
Potash Corp. CEO Bill Doyle recently said the company may resort to selling fertilizer to China on the spot market instead of negotiating a long-term contract if the two sides can't renew a three-year supply deal.
And Scotia Capital has said that although India seems close to reaching an agreement, China could skip signing a contract this year altogether and rely on strong domestic output, border trade and spot market purchases instead.
All this seems to add up to a bleak 2009 for the potash industry, but analysts and corporate players predict that demand will surge in 2010, as farmers can only delay fertilizing their fields for so long before it starts to affect crop yields.
"We've certainly said in the past and continue to believe that 2010 is setting up to be an extremely strong year for the fertilizer business as a whole and particularly for the potash business," Potash Corp. spokesman Bill Johnson said Friday.