By Leia Michele Toovey- Exclusive to Potash Investing News

In 2007 and 2008, a perfect storm of events led to record high fertilizer prices. The rapidly expanding world economy in these two years led to an increase in worldwide grain production. Expanding grain production increased demand for fertilizer. Record natural gas prices ushered in record high nitrogen fertilizer costs.  Inputs into phosphate fertilizers; the mined phosphate rock, sulfur, and ammonia used all saw dramatic price increases in 2008.

Another important trend was the weakening dollar. The U.S. dollar lost more than 20 per cent of its value compared to a number of international currencies. Most nitrogen and potassium fertilizer is purchased outside the country so a weak dollar pushes up U.S. fertilizer costs.

Since the fall of 2008 things have started to look quite different. Nitrogen and phosphate prices are in a downward freefall reaching levels not seen for a couple years. Dropping prices have almost eliminated demand for phosphate fertilizer while retailers and farmers look for the bottom price in the market. Demand has dropped to the point where some phosphate mines are being idled. As recently as October 2008 industry experts were predicting demand would exceed supply for the next three years

Despite grim circumstances for most commodity companies; Potash Corp of Saskatchewan’s (TSX: POT) 2008 net income doubled, in comparison to 2007. Net income increased to $788 million or $2.56 a share from $376.8 million or $1.16 a year earlier. Sales climbed 31 per cent to $1.87 billion. Potash last month said it plans to reduce output of its namesake crop nutrient by 2 million metric tonnes this year in an attempt to maintain prices. Potash, a form of potassium, accounted for half of the company’s fourth-quarter revenue.

Company news

Potash One Inc. (TSX: KCL) and Potash North Resource Corporation (TSX .V: PON) may soon become one. The two entities have entered into a binding letter of intent containing the principal terms by which, subject to satisfaction of certain conditions, Potash One will acquire all of the issued and outstanding common shares of Potash North. The Business Combination will require the approval of Potash North security holders, the Toronto Stock Exchange and the TSX Venture Exchange, and will be subject to other customary conditions, including the execution of a definitive agreement and completion of due diligence. Certain shareholders including Potash One and all the directors and officers of Potash North have agreed to vote their shares in favour of the Business Combination.

Russian fertilizer producer Uralkali’s output of potash fell 71.5 per cent in December to 129,900 tonnes from 456,600 tonnes in December 2007. Output in the whole of 2008 fell by 6.4 per cent to 4.8 million tonnes from 2007.  The company issued a statement claiming “the cut in production was a result of the current adverse situation in the world market for potash fertilizers, fuelled by the global financial downturn.”

Mosaic Co. (TSX:MOS) confirmed Monday it will lay off more than 1,000 workers at its potash mines in Saskatchewan due to slow fertilizer demand, the global credit crisis and growing potash inventories. Layoffs notices were set to 360 hourly employees at Mosaic’s Colonsay mine east of Saskatoon on Thursday and to 700 hourly employees at Mosaic’s Esterhazy mine in southeastern Saskatchewan on Friday. The layoffs, which affect about 80 per cent of the total workforce at the two mines, will take effect March 8 at Colonsay and February 15 at Esterhazy. The layoffs are for an indefinite period at Colonsay and for a renewable two-week period at Esterhazy due to differences in the collective agreements at the two mines.

Intrepid Potash officials had expected the Bureau of Land Management (BLM) to approve an environmental assessment that would allow the company to begin its HB solution evaporation potash production project early this year. But the federal agency scrapped the environmental assessment in favor of the larger study. The full environmental impact statement on a proposal for solution potash mining near Carlsbad could delay the operation at least 18 months. The BLM says the fuller study is necessary to answer questions about the proposal’s possible environmental impacts. Intrepid’s chief executive officer argues that potash solution mining is a widely used and accepted technology. Company officials say the environmental process won’t affect potash production this year.

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