First, an admission of guilt - I did think potash was the one commodity with a wide enough economic moat that production/price would not suffer materially in this downturn. Wrong! - well at least half wrong as prices have held up much better than any other commodity on the planet. Potash (POT) announces a 20% cutback in production... now the great irony is if this was announced 4 months ago, or 2 months ago or heck 3 weeks ago the stock would be down 30%. Instead, we get glee and jolly as Obama himself has a potash mine and hence anything Obama touches is gold. And global growth is also "back". Which once again goes to one of my favorite catch phrases - it's not the news, it's the reaction to the news. One could argue less production eventually leads to higher prices, hence this is 'bullish' but I don't read it that way - less production = less 2009 revenue all things being equal. The open question is the impact on prices in 2009 = unknown of course. CEO Bill Doyle, as have other fertilizer producers, says this disruption is "temporary" - as we said with the others, we'll see. Please note - I still like this sub-sector for the long run and indeed hold this stock, although we cut some back yesterday on the "Obama brings global growth back single handily" rally.

• Potash Corp. of Saskatchewan Inc., the world’s largest crop-nutrient producer, said it will cut 2009 potash output by 2 million metric tons beginning in January. The reduction for the year is necessary because of “a short-term” decline in demand, Saskatoon, Saskatchewan-based Potash Corp. said today on its Web site. The company produced about 10 million tons last year.
• Potash Corp.’s announcement comes less than a month after OAO Uralkali, Russia’s second-largest producer of the commodity, said it would cut output.
• “Potash Corp. has long made the calculus that what it can lose on volumes it can more than make up on prices,” Raymond Goldie, an analyst at Salman Partners Inc. in Toronto, said today in a phone interview. “Potash is unique among commodities in recent months in that it has gone, or stayed, at record prices. And the folks at Potash Corp. want to ensure that.”
• Potash Corp. expects demand for the commodity will be weak through the first quarter, Chief Executive Officer Bill Doyle said in the statement. “Beyond this, we see demand accelerating through the balance of the year as farmers deplete existing stocks and work to rebuild global grain inventories from extremely low levels,” Doyle said.
• Potash for delivery to Southeast Asia, including the cost of freight, has remained at more than $900 a ton since rising to a record in July, according to prices published by ICIS-LOR.

Now again, global grain stocks are strained, and any major weather issues can cause some serious issues worldwide. From a more practical point of view we are facing a potential disaster coming one of these years - specific to the entire commodity space we are going to ratchet down production so when the next global economic rebound happens we are going to be facing all the same situations we faced the past year. But with food, it's a lot more of a problem then say a lack of copper. (Nov 26: Food Crisis to Resume Next Year?) Resume? Did it ever leave? One billion humans now in bad shape - for some reason in our ivory tower (where 1 in 10 Americans are on food stamps) this type of news does not hit the mainstream.

• The food crisis has pushed the number of hungry people in the world to almost 1bn, in what the United Nations’ Food and Agriculture Organisation described on Tuesday as a “serious setback” to global efforts to reduce mass starvation. The Rome-based organisation said that a preliminary estimate showed the number of undernourished people rose this year by 40m to about 963m people, after rising 75m in 2007. Before the food crisis, there were about 848m chronically hungry people in 2003-05.

I still love the agriculture space for the long run, and believe farm land will be the best 20-40 year type of investment period. Unfortunately almost every hedge fund in the world also loved this thesis so as they've been taken out and shot one by one, their puking up of said equities has exaggerated the move downward. Specific to potash, the reason we love it is the wide moat and how expensive (and long) it takes to increase production (Nov 16: Potash Expands Mine for $2 Billion)

Next, as interesting and also from Bloomberg, are claims of price fixing in potash.