The global fertilizer industry looks to the world's biggest potash producer for guidance, but Potash Corp. of Saskatchewan Inc. has given up on predicting the future after posting an 80-per-cent drop in profits.
Just months after declaring an end to the "depression" in potash prices, chief executive officer Bill Doyle conceded "I fell on my face " when it comes to predicting when the world's farmers would begin purchasing the nutrient again.
"I've looked like a jerk all year long," he said, referring specifically to his failed prediction that the Chinese market would bolster demand and put a bottom on prices that have fallen from $1,000 (U.S.) a tonne last year to about $500 a tonne this fall.
The quarterly report came as the chairman of BHP Billiton Ltd., the world's largest mining company, said Potash is "seen as an opportunity" when asked whether the company would buy its way into the fertilizer industry or develop its own properties. BHP has been a rumoured suitor for months.
Yesterday, National Australia Bank Ltd. issued a report suggesting that BHP's credit rating would likely be downgraded if it bid for the Saskatoon-based company, saying it would be "a big bite" even for a large company such as BHP and estimating a price of $40-billion.
Potash shares have gained almost 15 per cent in the last five days, after Bank of America Merrill Lynch suggested BHP could afford a 30-per-cent premium to current share prices if it bid for the fertilizer giant.
Any deal would come at a time of great uncertainty for the fertilizer industry - Potash has slashed its earnings estimates and production this year, reducing the amount of potash it plans to bring to market this year by 5.5 million tonnes. It also said yesterday fourth-quarter profit likely would range between 65 cents to 85 cents, compared with the $1.18 analysts expected.
Mr. Doyle said the sharpest slump since the collapse of the Soviet Union has made forecasting difficult - from January to June, global exports fell by 72 per cent. Prior to that, the worst ever six-month decrease saw volumes slip 27 per cent.
"Everyone would like to know the date or even the signal that will mark a return to normal markets," he said. "We thought [a contract settlement with India] would ease the uncertainty, but that has not happened."
Mr. Doyle repeated a familiar refrain as he told analysts that farmers will need to start applying potash to their fields again if they hope to maintain large yields, especially in countries such as China desperate to feed growing populations.
"The first thing to do is step back and state with confidence that the last year was an anomaly," he said. "Big production numbers hide a reality - record crops draw more nutrients out of the soil, and you need to put them back in to maintain production."
Still, there are difficulties. A late corn harvest in the United States has cut into the amount of time farmers have to apply fertilizer before next season, and a record crop may embolden producers into skipping another fertilizer application.
Retailers also present a challenge - many were left holding onto expensive stockpiles when prices dropped, and are leery of restocking their shelves until they see a real increase in demand.
POTASH (POT-T) Close: $108.08, up 78¢
Potash Corp.
Q3 / 2009 / 2008
Profit / $248.8 million / $1.2 billion
EPS / 82 cents / $3.93
Revenue / $1 billion /$3.1 billion
All figures in U.S. dollars
Source : Company reports
© The Globe and Mail
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