Low crop prices, high inventory hurting profits in fertilizer industry

As crop prices fall, farmers and buyers around the world have balked at paying high prices for fertilizer, leading to collapsing revenues and sharply reduced third-quarter profits at Potash Corporation of Saskatchewan Inc. (TSX:POT), the world’s biggest fertilizer producer.

As crop prices fall, farmers and buyers around the world have balked at paying high prices for fertilizer, leading to collapsing revenues and sharply reduced third-quarter profits at Potash Corporation of Saskatchewan Inc. (TSX:POT), the world’s biggest fertilizer producer.

Low crop prices for grains and other products have cut demand for fertilizers like potash and global inventories remain high, developments which have squeezed the fertilizer industry, president and CEO Bill Doyle said Thursday.

“The agricultural industry has not yet broken free of this uncertainty,” Doyle told a conference call to discuss the financial results.

Farmers haven’t been using as much fertilizers and dealers have let stockpiles diminish, Doyle said.

For the quarter ending Sept. 30, PotashCorp’s net income was US$248.8 million or 82 cents per share. That’s an 80 per cent drop from $1.2 billion or $3.93 per share in the same period last year.

The Saskatoon-based fertilizer giant, which reports its results in U.S. currency, said sales fell by more than two thirds to $1 billion in this year’s summer quarter compared with $3.1 billion in the same period last year.

Using less fertilizer isn’t sustainable as the world’s population grows and needs more food, Doyle said.

The economies of China and India are projected to grow sharply in 2010 and a priority will be to improve their citizens’ quality of life with better food, Doyle added.

“Farmers know this and they will start feeding their soil again,” Doyle said. “The need for potash in the future is undeniable.”

Higher crop prices also will help push demand, too, he said.

PotashCorp, which is the world’s largest potash producer, said the continuing caution was the main reason for the drop in sales volumes and prices for potash, phosphate and nitrogen.

In a move to try and stabilize fertilizer prices, PotashCorp. plans to cut production by 60 per cent this year, but inventories remain high because many farmers and dealers stockpiled fertilzers last year expecting prices to continue rising.

Until inventories drop, prices will remain weak.