Potash Corp. of Saskatchewan Inc. is vowing to avoid another dramatic potash price spike that triggered a market crash two years ago, as the company's earnings soar amid surging global demand for crop nutrients.
The world's largest potash producer said it expects record shipments this year as farmers scramble to boost crop yields to take advantage of rising food prices. The company predicts potash prices will continue climbing this year beyond the current level of about $400 (U.S.) a tonne.
But even as demand for the key fertilizer ingredient climbs, Potash Corp. chief executive officer Bill Doyle says price increases will be more measured than in mid-2008, when they surged to around $1,000 a tonne. When prices skyrocketed then, farmers balked at the costs and pulled back on fertilizer use, causing prices to plunge to about $300 and sending profits lower for Potash and other producers.
"I think people learned a lesson," Mr. Doyle said Thursday. "We never, ever like to get to the position where the farmer doesn't make a proper return. As soon as you do that, you are going to bring the whole tent down."
Potash demand and prices have been recovering steadily over the past year, driven largely by growing populations in China and India, where higher incomes have led to more protein-rich diets. The United Nations estimates food production will need to grow by 70 per cent by 2050 to meet soaring population growth worldwide. Food prices have soared in some areas around the globe, contributing to civil unrest in countries such as Egypt and Tunisia.
Saskatoon-based Potash Corp. reported a doubling of its fourth-quarter profit to $482.3-million, or $1.61 a share on Thursday, and raised its annual earnings forecast. Late Wednesday, the company also announced a three-for-one split of its common shares and increased its dividend. Potash Corp. shares hit $178.71 on the New York Stock Exchange Thursday, their highest level in more than two years, before settling at $174.14, up 3 per cent from the day before.
While fertilizer firms such as Potash Corp. are focused on making a profit from the rise in demand, Mr. Doyle insists the industry also has "a responsibility to be part of the solution, not part of the problem."
But he doesn't see today's price increases in potash as a problem, as long as farmers are making a profit. "We are a long way from any type of demand destruction," he said.
In fact, he criticized his competitors in Russia for signing an agreement to ship potash to China for $400 a tonne, which he sees as too low. While China should get a break as the world's largest consumer of potash, "they don't need to have that much of a better price," Mr. Doyle said.
The potash market is controlled by two main marketing companies, Canpotex Ltd. and Belarusian Potash Co., which together control about two-thirds of the global market. Canpotex markets potash produced in Saskatchewan by Potash Corp., Mosaic Co. and Agrium Inc., while BPC is an arm of Belaruskali and Russia's Uralkali.
"The major overseas sellers, Canpotex and BPC, are going to only moderately increase their overseas prices this year in order not to derail the big pickup in demand," said Patricia Mohr, commodity market specialist at Bank of Nova Scotia.
Ms. Mohr expects this year to be "one of the best ever seen for fertilizer application," which will increase demand and prices for potash.
POTASH CORP. EARNINGS
Fourth quarter of 2010: $482.3-million, or $1.61 a share
Fourth quarter of 2009: $239.2-million, or 79 cents a share
Fourth quarter of 2010: $1.81-billion
Fourth quarter of 2009: $1.1-billion