Fertilizer Makers Cut Production | January 5, 2009 Issue - Vol. 87 Issue 1 | Chemical & Engineering News
Volume 87 Issue 1 | p. 10 | News of The Week
Issue Date: January 5, 2009

Fertilizer Makers Cut Production

Farmers are postponing nutrient application until spring
Department: Business
PotashCorp runs the world's largest potash mining operation in Saskatchewan.
Credit: PotashCorp
PotashCorp runs the world's largest potash mining operation in Saskatchewan.
Credit: PotashCorp

FOR MUCH OF 2008, North American fertilizer companies seemed immune to the gathering global economic crisis. Now, however, they are following their peers in the broader chemical industry and announcing production cuts.

Companies are reporting that lower sales caused both a buildup of inventories and price declines in the final quarter of 2008. PotashCorp, Terra Industries, Agrium, Mosaic, and Intrepid Potash say they will produce fewer tons of nitrogen, potassium, and phosphate until the second quarter of 2009, when they expect demand to increase again.

"The late North American harvest, coupled with credit restrictions from international buyers and continued market uncertainties resulting from reductions in global crop and nutrient prices, has impacted fall nutrient applications," Agrium CEO Michael M. Wilson explains.

Mosaic reduced its potash production last quarter by 1 million tons and expects to continue producing at the lower rate if the poor market conditions persist. Terra has idled ammonia facilities in Woodward, Okla., and at two locations in the U.K. where it operates its part of the GrowHow joint venture. And Intrepid Potash has reduced its contract labor force at potash mines in Carlsbad, N.M.

Similarly, PotashCorp will curtail potash production in Saskatchewan by 2 million tons annually beginning this month. The firm has revised its 2008 full-year earnings expectation downward by 10%. Agrium has also idled production in Alberta and at other plants in North America. The company expects operating results will be down by as much as 15% from prior earnings forecasts.

Fertilizer company executives emphasize their view that the softening of demand is temporary. "The world's growing population still needs to eat, so although purchases of vital crop nutrients may be delayed ..., they can't be avoided like most discretionary purchases," Mosaic CEO James T. Prokopanko says in a statement.

Citi Investment Research analyst Brian Yu agrees that agricultural fundamentals are strong. He says the slow sales are due to farmers "tactically waiting for fertilizer prices to settle after a sharp run-up through the third quarter of 2008." Yu points out that grain inventories are still historically low and says food prices will increase further if crop yields or acreage falls short of expectations.

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