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According to the latest data form the Fertilizer Institute, potash inventories at North American producers are 42 per cent higher than the previous five-year average. North American potash shipments in the month of February were down 80 per cent from the same month period a year earlier.

This data has prompted Potash Corp of Saskatchewan (TSX: POT), the world’s largest fertilizer producer, to further curtail potash production. The company said it plans to reduce 2009 potash output by an additional 1.5 million tonnes, bringing the total expected curtailments of operational capacity this year to at least 3.5 million tonnes. Potash Corp said it still expects a strong rebound in potash demand in the second half of 2009 that should continue into 2010.

K+S AG, (FRA: SDF) Europe’s largest producer, expects orders for potash to revive in the second half and to “normalize” in 2010 with demand growing 3 to 5 per cent annually, Chief Executive Officer Norbert Steiner said at a press conference in Frankfurt. Potash prices are predicted to rise another $100 US per tonne from the average price of $450 US in 2008-09, which is more than double the 2008-09 budget forecast of $203 US. Steiner added potash prices averaged more than $550 US per tonne for the fourth quarter of 2008, and recent sales have seen prices range from $750 to $900 per tonne.  

The Saskatchewan government is counting on sustained potash sales to help compensate for the province’s shrinking oil revenues. The local government has calculated that fertilizer sales will generate $1.9 billion, or about one-fifth of provincial revenues, in fiscal 2009-10. 30 per cent of the world’s potash comes from Saskatchewan.

K+S AG, has forecast “significantly” lower earnings this year as farmers delay purchases, betting prices may decline later in the year. K+S has pinpointed a few acquisition targets that will benefit its conglomerate business. The company expects the government to consider its bid for an abandoned mine in Rossleben in eastern Germany in the summer. CEO  Mr. Steiner said one other group also bid for the mine, which has now become a profitable prospect thanks to recent potash price gains. K+S is also looking to expand its salt business, with Compass Minerals International Inc, a target.  Morgan Stanley is advising K+S on the possible bid, which would boost the German company’s U.S. market share.  Compass, which also produces specialty fertilizer for fruit and vegetable crops, has a market value of about $1.82 billion.

The prefeasibility study on the first Canadian potash mine in almost 30 years is expected to be completed by May of this year.  The mine’s developer, Potash One, is in the midst of confidential talks with State-owned enterprises in three key markets: China, India and Brazil.  The Legacy project currently has an indicated resource of 36.8-million tonnes, plus 360.4-million tonnes in the inferred category. However, Potash One will publish new drilling results within the next week or two, followed by an updated resource statement, which CEO Paul Matysek is hoping will indicate support for a 2-million-tonnes-a-year mine, with a life-of-mine of more than 50 years.

Potash One (TSX: KCL) likely has enough equity and credit to fund a smaller, 800 000-t/y operation, which may cost between C$600-million and C$800-million. However, if the company wants to be more ambitious and instead pursue a larger operation, funding would be needed.  This is where a strategic partner would come in handy.  The firm has confidential agreements and is exchanging data with “two or three” State-owned firms in each of its target countries, and Matysek.  He would consider selling a stake from 10 per cent to 20 per cent of the company to a partner, plus up to 40 per cent of the project, as well as concluding a “competitive” off take agreement.