Potash Market Outlook"With current estimation of global potash...

Potash Market Outlook

"With current estimation of global potash operational capability at 61 million tones, PotashCorp expects supply to remain under pressure throughout 2011" PotashCorp Q4 & Year End Report: Jan.27.2011

http://www.potashcorp.com/news/1077

PotashCorp says that global potash shipments reached an estimated 52.0 million tones in 2010".

PotashCorp believes that this is only the beginning of the rebound, the majority of product shipped went straight to the field and limited dealer inventory restocking occurred.

Hence the shipments in 2011 could reach 55.0-60.0 million tones, depending on how aggressively farmers and fertilizer dealers move to replenish depleted inventories in the soil and supply chain.
...
With current estimation of global potash operational capability at 61 million tones, PotashCorp expects supply to remain under pressure throughout 2011

Given the tightening fundamentals, prices to all markets have begun to move higher.
....
PotashCorp sees the potential for similar trends in offshore spot and contract markets as the year progresses."

Highlights from the report

"Driven by significantly improved demand and strong price momentum across all three nutrients, fourth-quarter 2010 gross margin climbed to $763.0 million, nearly triple the $272.7 million generated in the same period last year."

Market Conditions
"Estimates of global grain and oilseed supplies declined under the weight of rising food demand and crop production concerns in certain producing regions. Prices for many crop commodities rose to record or near-record levels as grains and oilseeds rallied to compete for a larger share of the world's limited arable land. This environment provided the important and necessary economic motivation for farmers to increase production through improved yields and act with greater urgency to address depleted soil nutrient levels. As a result, fertilizer demand accelerated and pricing - particularly for potash - increased as the quarter progressed"

"Farmers in the US moved aggressively to take advantage of a wider fall application window, which drove domestic potash shipments from North American producers to 2.2 million tonnes in the quarter, making it the second-highest fourth-quarter total on record and the largest since 2004.

Demand in offshore markets also approached record levels for the fourth quarter as shipments from North American producers reached 2.3 million tonnes, 85 percent above 2009 levels. North American producer inventories fell below the previous five-year average and, globally, potash producers were challenged to keep pace with accelerating demand.

With commitments testing global supply limitations, price increases announced during the quarter took firm hold. We believe the majority of product shipped went straight to the field and limited dealer inventory restocking occurred"

Potash
"Record fourth-quarter sales volumes of 2.4 million tonnes pushed potash gross margin to $519.5 million, the highest quarterly total for 2010. This raised full-year gross margin to $1.8 billion and sales volumes to 8.6 million tonnes, each the second highest in company history and well above the previous year."

"Robust global demand lifted offshore sales volumes to 1.6 million tonnes, a fourth-quarter record and more than double the same period last year. Offshore volumes accelerated over the course of the quarter as sales by Canpotex Limited (Canpotex), the offshore marketing agency for Saskatchewan potash producers, reached record levels in December".

"The strength in demand was widespread, with Latin America (27 percent of Canpotex shipments) and other Asian countries (38 percent) the largest buyers in the quarter while China and India represented 20 percent and 12 percent, respectively. For the year, our offshore sales volumes grew to 5.3 million tonnes, nearly triple 2009 levels."

Outlook
Several forces have converged to create an exceptionally positive environment for global agriculture - one that we believe will support powerful growth in the years ahead.

"Ongoing increases in world food demand have proven to be a constant driver for agriculture and we believe this will continue, as the needs of an ever-expanding population and improving economies in developing countries have transcended short-term economic shifts. This means that crop productivity must continue to improve and that maintaining historical trends in yield growth is not enough to keep pace. As an example, the United States - the world's largest agricultural exporter - produced the largest corn and soybean crops in its history during the past four years, yet stocks have continued to decline because of escalating demand. More importantly, global grain supplies have been drawn down to levels that cannot handle short-term supply shocks. Overcoming this challenge will require a sustained commitment to increase food production, including improved fertility practices."

"While we see potential across all three primary nutrients, we believe potash represents the greatest opportunity - especially for PotashCorp."

"...we enter an environment in which global potash demand is expected to pressure existing operational capabilities..."

World Potash Demand in 2011
"Our confidence in the future is buoyed by the transition that took hold in 2010, when global potash shipments reached an estimated 52.0 million tonnes. We believe this is only the beginning of the rebound and that shipments in 2011 could reach 55.0-60.0 million tonnes, depending on how aggressively farmers and fertilizer dealers move to replenish depleted inventories in the soil and supply chain."

"North American demand is expected to remain strong ... We anticipate demand in this market will be near historical highs, and reach approximately 10.0 million tonnes in 2011."

"Farmers in Latin America are responding to strong grower economics,.. this market will reach record levels with potash demand of approximately 10.0 million tonnes, including Brazilian imports of 7.0 million tonnes".

"India, coming off a year of record potash demand, is expected to move quickly to secure new supply contracts ... its potash demand this year could reach record levels of approximately 6.5 million tonnes."

"Other Asian countries (not including China and India) are expected to import around 6.5 million tonnes in 2011."

"China's consumption ... Early in first-quarter 2011, it signed a six-month contract at higher prices with Canpotex for shipment of 600,000 tonnes... We believe China could make larger volume commitments in the latter half of the year, and anticipate that its consumption could approach 11.0 million tonnes in 2011, including imports of 7.0-7.5 million tonnes."

"With our current estimate of global potash operational capability at 61 million tonnes, we expect supply to remain under pressure throughout 2011., Given the tightening fundamentals, prices to all markets have begun to move higher. This has taken effect more quickly in the US, as market-focused farmers and fertilizer buyers secured the potash needed to capitalize on strong agricultural returns. We see the potential for similar trends in offshore spot and contract markets as the year progresses."