By Leia Michele Toovey- Exclusive to Potash Investing News.

If there was a bright spot in the commodities market in 2008, it would have to be Potash.

Potash prices are up significantly compared to last year, and despite an expected short-term credit crunch, the long-term outlook is for growing demand. Potash companies have been under fire recently for failing to drop the selling price of potash despite all of the other commodities price crash.

In fact, many of the major potash companies have come together and formed a pact not to drop potash prices. The price of potash has skyrocketing. In August-November, a time when many commodities shed half of their value, the average price for potash rose 20 per cent to $765 a tonne.

The big market players have been suppressing output, a move many say is being undertaken to keep prices high. With spring planting around the corner and no proof of diminishing demand; we may be in for another rapid price ascent for potash. Current potash sales are down, but many say this is due to companies waiting to see if prices correct themselves before they commit to potash purchases.  The word on the street is that companies plan on holding out till January at the earliest.

On Wednesday, Potash Corp. joined the likes of Mosaic and Uralkali in cutting production The Company will reduce 2009 output by roughly 20 per cent, beginning in January, citing a temporary week demand.  However, if purchasers are in fact holding out, come January, their will be a scramble for purchases as farmers prepare for their spring plantings.  

Despite their announcement to curb production, Chief Executive Officer Bill Doyle sees demand as only temporarily weak, noting a slowdown in the availability of credit and a general “wait and see” attitude from purchasers at an investor conference on Tuesday. But Doyle sees demand accelerating in the second half of the year, noting that global inventories of both fertilizers and grains remain at historical lows. Demand for crop nutrients has weakened as wheat, corn and soyabean prices dropped in the second half, undermined by the credit crisis. At the same time, world population growth continues to increase demand for food, putting pressure on grain inventories and setting the stage for higher crop prices. “The current economic turmoil will not impact the desire of an increasing number of people to feed themselves and their families,” Doyle said. Yesterday, Potash Corp, along with Agrium and Mosaic signed a deal with Korea to supply potash $900/mt, which is in line with an earlier deal signed with Japan for 2009.

K+S also recently announced a cutback.  The company plans to idle several fertilizer plants and shorten working hours to offset continued weak demand, the company said on Tuesday. Nonetheless, it expects demand to pick up again in the second half of 2009.To cut back output, the world’s fourth-largest potash miner planned to shut several plants on a week-by-week basis for several months. The company has toned down its outlook for this year after the financial crisis put an abrupt end to a boom in agricultural commodities, suppressing fertiliser demand.

With the high price of potash, many farmers are having difficulty in affording much needed fertiliser for their fields. Now, with the credit crunch farmers may reduce plantings for 2009 because of the high nutrient costs, and recent declines in the prices of staple foods. Many food staples such as grains and soy have lost nearly half of their value.  Without a coinciding decline potash, farmers will see their 2009 margins shrink.

In eight federal lawsuits since September, six potash producers that do business in the U.S. have been accused of colluding to raise prices and limit supply. Four of the defendants, Potash Corp. of Saskatchewan Inc., Mosaic Co., Agrium Inc., and Uralkali say the cases have no merit.  Due to the fact that the court cases are currently in process, no comments have been made on why the potash companies are limiting supply. Once the trial progresses we will be able to hear more information from both sides.

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