MAC: Mines and Communities

Mining company blames farmers for risking gobal food supplies

Published by MAC on 2009-04-27

The world's leading potash mining corporation claims that farmers are putting at risk global food supplies by not buying its products. India is singled out for wanting to purchase potash at lower prices - something which, according to the company, "isn't going to happen."

Farmers worldwide in "a dangerous game'': Potash Corp CEO

Canadian Press

23rd April 2009

SASKATOON _ The world is setting itself up for a hungry future as farmers play "a dangerous game" by skimping on fertilizer, the chief executive of Potash Corp. of Saskatchewan said Thursday after a "terrible" first quarter in which sales fell by more than half from a year ago.

The market will turn quickly, Bill Doyle predicted after the world´s biggest fertilizer producer, reporting in U.S. dollars, said quarterly earnings withered to $308.3 million or $1.02 per share.

This was down 46 per cent from a bonanza year-ago profit of $566 million or $1.74 per share. The latest quarter´s net income would have been lower by another $166.8 million if not for beneficial tax adjustments.

Sales shrivelled to $922.5 million from $1.89 billion, but "we´ve got the pain largely behind us," Doyle told a conference call.

"While economic conditions have been the focus for most people in recent months, the world´s attention must return to the science of food production," he declared.

"A year ago, concerns over world food shortages were headline news, and little has changed to alleviate the pressure on the food supply."

Southern-hemisphere farmers in Argentina and Brazil are producing "a bad start to the global crop year" as a result of lower fertilizer applications, and after record world grain production in 2007 and 2008, "the year 2009 could be a completely different story," he said.

"You could see dramatically higher grain prices going into this fall."

Beyond then, he predicted, potash demand will blossom, "leading us to an exceptional 2010."

But in the meantime, after taking 39 mine weeks in the first quarter, "we will continue to reduce production by as many tonnes as it takes" to stabilize prices.

Management also plans no major new capital expenditures until prices rise, he said, though projects underway in Saskatchewan and New Brunswick will continue, expected to cost C$7 billion and expand PotashCorp´s capacity to 18 million tonnes in 2014.

"A dangerous game is now unfolding around the world," Doyle told analysts.

"Fertilizer applications are being reduced at unprecedented levels, with our estimates for North American potash applications falling as much as 30 to 35 per cent" _ back to levels of the early 1980s while demand has risen 90 per cent, powered by nutrient-intensive corn.

"This level of reduction has never been seen before," Doyle said. "No one can state precisely what the impact will be on the world´s food supply, immediately or over the longer term. But we know with scientific certainty that nutrient under application damages both crop yields and quality."

He added that the reduction in fertilizer use "is more about psychology than economics," as global grain inventories remain tight and farmer returns are well above historical averages.

PotashCorp expects second-quarter earnings per share of $1.10 to $1.50, and its full-year EPS outlook has been cut to between $7 and $8, from $10 to $12 three months ago, to reflect the "extremely slow" first half.

PotashCorp shares declined $2.42 or 2.4 per cent to $97.98 at mid afternoon on the TSX, down from last June´s peak of $246 but up from the recent low of $62 in December.

Export negotiations with China and India will begin in earnest at the end of May and will likely conclude by the end of June, and "we´re not exactly sure where prices will end up," Doyle said.

After last year´s speculation about $1,000-a-tonne potash, India is said to want a price reduction from $625 to $200. "Well, that´s not going to happen," Doyle said, adding that if it did happen producers would slash output, halt expansions, and "you wouldn´t have $1,000 potash _ you´d have $2,000 potash."

China, meanwhile, is expected to maintain last year´s import volumes of about five million tonnes. "China, there´s no question, has been mining the soil bank both in 2008 and 2009, and the early indications we´re getting from our partner in China is that 2010 is going to be a big rebound year," Doyle said.

"Chinese soils are some of the oldest soils, in terms of being worked in agriculture, in the world," he noted. "The Chinese know that they can no longer deplete the nutrient levels, especially for potash, going out into 2010."

Home | About Us | Companies | Countries | Minerals | Contact Us
© Mines and Communities 2013. Web site by Zippy Info