Update Potash of Saskatchewan (POT)

07/29/2010 5:40 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Listening to the Potash of Saskatchewan (POT) conference call today, July 29, I kept thinking that some one was going to yell, “Cue the plague of locusts.”

In Russia grain production will fall by 20% because of drought, the company said. Canadian wheat production is forecast to be down 20% because of flooding during planting season. In India, after a string of bad harvests from insufficient monsoon rains, too much rain is rotting crops in storage.

The company forecast that China will have to import about 75% of its soybean needs in 2010 and 1.7 million tons of corn. India could hit record levels of grain imports.

Food commodity prices are likely to rise as 2010 goes on and next year, so farmers in countries such as Brazil and the United States that did have good harvests to export should have plenty of cash to increase purchases of fertilizer.

That will make 2010-2011 a tight year for fertilizer supplies. Potash of Saskatchewan estimated that global potash production capacity will be about 60 million tons. The company forecasts potash demand of about 55 million tons. That will require operating rates of 90%, a level that’s historically meant a tight market and rising fertilizer prices.

Before the stock market opened on July 29 Potash of Saskatchewan reported second quarter earnings per share of $1.32, above the Wall Street consensus by 19 cents a share. Revenue climbed 68% from the second quarter of 2009 to $1.44 billion.

Even lackluster guidance—the company simply confirmed 2010 earnings per share of $5.00 to $5.50, in line with the consensus forecast of $5.31—didn’t prevent the stock from rising more than 5% on the day.

Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.

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