By Leia Michele Toovey- Exclusive to Potash Investing News ^[1]

^[2]It is no mistake that the US led the world into the current economic crisis.  The power to lead the world out rests in the hands of the Asian economies, especially China. Chinese demand is a major driving force; it has the ability to push the price of the commodities in any direction.

Three provinces in China are in the midst of the worst drought ^[3] in 50 years. The winter crop (planted in August, harvested in May) is more important than the crop planted in the spring, and it is the one currently suffering from drought. If the spring rains fail next month, then the drought is likely to hurt both crops.  Chinese farmers do not add fertilizer to rain-starved soil. However, they do increase the volume of fertilizers to less afflicted fields, in order to increase their harvest payoff. The impact of this drought on farmers is likely to be increased demand from China for fertilizer to apply to fields unaffected by water loss.  According to Merrill Lynch analysts in Hong Kong, "Since 1987, fertilizer demand in China grew on average 7.9 per cent in drought years, more than double the 3.2 per cent average in non-drought years. As a result, we believe that the chance of a significant pick up in fertilizer demand is high."

Potash Corp, the world's largest fertilizer maker, expects 2009 potash contract negotiations ^[4] with China to conclude in April or May.  Company CEO Bill Doyle said he expects the Chinese to import at least 7 million tonnes of potash in 2009, up from 5.1 million tonnes last year. "China consumed in 2008, 3.5 to 4 million tonnes less potash than it consumed in 2007 and yet they had a record crop. So they mined the soil reserves in 2008, they now have to apply more potash in 2009.

A quick rebound in potash demand could spell disaster for farmers. High fertilizer stockpiles mean that demand may be hard to meet when growers start buying. Yes, this sounds counterintuitive; however, as stockpiles reached record highs after six months of slow sales shippers idled trains.  Now, a lack of readily available transport will create a lag time to freighting fertilizer from storage to farm. "Farmers delayed fertilizer purchases in the second half of last year amid speculation that prices would continue declining while producers curtailed output. Now, there may not be enough to go around when farmers want it most," said Mosaic Chief Executive Officer James T. Prokopanko.  "We've seen the supply chain just plug up. Warehouses are full. Dealer warehouses, distribution warehouses are full."

Company News

Potash Corp of Saskatchewan (NYSE:POT) expects gross margins to grow significantly in the years ahead, as the company continues to expand its potash production capacity, "It is possible that when all our current projects are complete, raising our annual capacity to 18 million tonnes, our potash gross margin could climb to the neighborhood of $25 billion annually," said CEO Bill Doyle. In 2008, the company posted a full-year potash gross margin of $3.1 billion. It expects potash gross margin could reach $4.5 billion to $5.5 billion in 2009. Potash closed yesterday at $86.09. So far the stock has hit a 52-week low of $47.54 and 52-week high of $241.62. Technical indicators for the stock are Bullish and S&P gives POT a neutral 3 STAR hold rating. Potash appears on the Investors Observer Analysts Favorites list.

Owners of Uralkali are now awaiting a government ruling ^[5] that may put the company, or controlling shareholder Dmitry Rybolovlev, out of business.  The ruling will be on whether or not the company will have to pay up to US$3 billion bill to the government following formation of a vast sinkhole at one of its mines.  At the heart of the company's woes is the sinkhole at the company's Mine-1 at Berezniki, in the Perm region. Deputy Minister for Natural Resources Semyon Levi held a meeting on February 12 in Moscow to review estimates of the bill for costs, compensation and liabilities facing Uralkali from the subsidence and loss of the mine in October 2006. Revival of government claims against Uralkali began, apparently on the initiative of Deputy Prime Minister Igor Sechin, last October.  Hints from Prime Minister Vladimir Putin, Sechin and others suggests they are considering disposing of Rybolovlev, and reorganizing Uralkali under the control of Vyacheslav Kantor, who currently controls the nitrogen fertilizer producer and exporter, Acron. Government officials say the latest session on Uralkali's future was closed, and they decline to give any account of what happened. This silence was interpreted by the Moscow market as positive for Uralkali, whose share price immediately jumped 16 percent on the absence of news last Friday.  Uralkali officials are making no comment on the situation; they remain in waiting mode for Sechin's decision.

Intrepid Potash Inc. said on Wednesday it would temporarily halt production and then cut shifts at its New Mexico facilities to pare back inventory as sales of crop nutrients remain weak. "While Intrepid anticipates that this reduction in our production rates to be short-lived, the timing of market demand and sales conditions will ultimately drive the level of production," the company said in a statement. Two of its three facilities in Carlsbad, New Mexico, will shut for two weeks starting Feb. 9.

Agrium will have to consider layoffs or shutting in its potash plant totally if sales do not improve, its chief executive on Wednesday. "We match our production to our sales; we don't do it in the reverse fashion," CEO Mike Wilson said on a conference call with analysts. "Our production has been throttled around 50 per cent. We have not laid off anyone at this point. We have not shut in our plant totally at this point, but if sales don't strengthen we would likely do that."