Saturday, June 27, 2009

Potash Corp. slashes profit outlook

Globe and Mail | Potash Corp. of Saskatchewan Inc. (POT-T107.66-0.39-0.36%) dismantled its second-quarter profit guidance, warning investors that its earnings will be at least 45 per cent lower than expected as customers continue to shun the fertilizer giant's products.

Potash and other producers of chemicals used to enhance crop yields have been grappling with falling sales for months as farmers and big buyers like China delay purchases. Potash's first-quarter profit fell by nearly half from the previous year and other major rivals, such as Bunge Corp. and Terra Industries, have reported even steeper drops. At the time of its first-quarter report, the company said, “fertilizer sales had ground to a virtual halt.”

Thursday's steep profit warning provides strong evidence that potash sales have yet to recover. Potash reduced its per-share profit forecast to 70 cents (U.S.) a share from a previous target of between $1.10 to $1.50 a share.

“The sales to date this year have been softer than originally forecast. Pricing has remained relatively firm but the volumes have been certainly lower than forecast,” spokesman Bill Johnson said in an interview.

While Potash Corp. shares have outperformed for much of the year on the belief that fertilizer demand would recover, the company's stock price has been falling steadily in the past few weeks. Potash stock traded as high as $132 on May 19, but closed yesterday at $108.05, up 64 cents.

As potash prices have remained relatively buoyant during the recession, customers have deferred purchases.

Some farmers are choosing not to use fertilizer this year rather than pay the high prices.

Weather has also played havoc with farmers this spring in many parts of Canada and the United States. While those across the Canadian Prairies have experienced dry weather, many parts of the U.S. have had cool, wetter weather. All of that has delayed planting and could lower overall crop production.

The potash industry is highly concentrated and Potash Corp. has cut production in order to help stabilize prices. But this month K+S AG of Germany said the current price of around $750 (U.S.) a tonne was unsustainable and it announced it is lowering its price for some products by 22 per cent.
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US farmers cut fertilizer use this spring. What will happen to global food production levels as the use of fertilizer falls?

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