PotashCorp sent word from Saskatoon this morning reporting third-quarter earnings of $0.74 per share. That falls 21% lower than third-quarter 2011 but working cash levels are close to record highs. The outlook is positive for all three nutrients based on the industry fundamentals of rising food demand, supportive crop prices and the scientific need to replenish nutrients worldwide.
PotashCorp took a hit when China and India opted not to make its annual fall potash purchase, but aggressive buyers in North and South America and other Asian buyers made up some of the difference. This helped push third-quarter shipments from domestic potash producers 26% higher year-over. An early North American harvest has extended the fall fertilizer application season, aiding demand.
The long and the short of it is, PotashCorp, while stinging from China and India's refusals, expects the industry to continue to support moderating price action on high demand and robust supply. But warns that springtime purchases from India and China could chase potash prices higher at that time. Based on PotashCorp's report, now may be a great time to book some potash, but consult your Inputs Monitor Index and arm yourself with up-to-date, local pricing.
The following is an excerpt from the PotashCorp report --
"In offshore markets, delays in closing new contracts with buyers in China and India more than offset strong demand from Latin America (especially Brazil) and resulted in a decrease in third-quarter shipments from North American producers to 1.9 million tonnes, 25 percent below the same period last year. As a result, rising competitive pressures in certain offshore markets moved most spot-market prices lower during the quarter.
The economic motivators for farmers to increase food production remain strong – a situation that, combined with the basic principles of agronomy and the need to improve crop yields around the world, typically drives fertilizer demand. Yet, as this situation unfolds, the speed and magnitude of response has varied by market.
In the US and Brazil, farmers are responding more quickly to the opportunities and driving strong demand for all fertilizers, while regions with more government involvement and less-developed agricultural economies – and lagging yields – have moved more slowly. This current dichotomy has disrupted typical demand patterns and caused potash shipment expectations to fall below previously forecast levels, which are now anticipated to be in the range of 50-52 million tonnes for the year.
In this environment, we now estimate our 2012 potash segment gross margin will be in the range of $2.1 billion to $2.3 billion. This revised estimate primarily reflects a reduction in our shipments estimate for 2012, which is now anticipated to be in the range of 7.6-8.3 million tonnes. The wide ranges on these estimates primarily reflect our varied timing assumptions on new supply contracts.
Inventory-related downtime at our lower-cost Lanigan and Rocanville facilities, in addition to increased depreciation charges and the impact of higher costs associated with potash tonnes from Esterhazy, is expected to result in a per-tonne cost of goods sold for the fourth quarter above those compared to the same period last year.
The expectation of record or near-record corn plantings in 2013, along with healthy industrial demand, is likely to lead to relatively tight markets – particularly for ammonia – through the balance of 2012. We now forecast our combined phosphate and nitrogen gross margin for full-year 2012 to be in the range of $1.3 billion to $1.5 billion.
PotashCorp forecasts full-year earnings between $2.40 and $2.60 per share which includes the impacts of the $0.39 per share adjustment for a Sinofert impairment charge recognized in the second-quarter of 2012.
PotashCorp President and Chief Executive Officer Bill Doyle remarks, "We intend to follow a business strategy designed to protect the value of our enterprise while remaining steadfast in our commitment to deliver on future growth. We believe the nature of food production necessitates that fertilizer demand will return in all major markets. When it does we will be ready to meet the needs of our customers and deliver the best possible long-term returns for stakeholders."
Again, check with your Inputs Monitor Index and do your homework before making a purchase. Once India and China realize how much potash they didn't buy this fall, they may take the lion's share of springtime inventories, and drive prices of North American springtime potash higher.