pot may 2010 agm part 1 potash of saskatchewan

8/8/2019 Pot May 2010 Agm Part 1 potash of saskatchewan

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Bill Doyle

President and CEO

Potash Market Drivers

Analyst Meeting

May 19, 2010


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PotashCorp Analyst Day: Potash Market Drivers 2


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Good afternoon. Thank you for joining us for our 2010 Analyst Meeting. We

appreciate this opportunity to discuss the long-term drivers in the fertilizer industry

and the prospects for our company.

As the worlds largest producer of the three essential nutrients for crop production,

our business is driven by two well-established trends that impact the demand

for food.


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The rst is population growth. In 1970, there were fewer than 4 billion people on

the planet. Today, there are almost 7 billion. This total is expected to increase by

another 800 million people in the next decade alone more than twice the

population of North America.

The majority of this growth is occurring in developing nations with an increasing

share of the population living in urban areas.

Over the past decade, the percentage of Chinas population living in cities has risen

from 35 percent to 45 percent. This is equivalent to approximately 150 million

people. Within the next decade, it is expected that more than the majority of

Chinas population will live in cities.

The importance of this transition is highlighted by household surveys in China that

show urban dwellers purchase four times as much red meat and consume

signicantly more sh, poultry, eggs and high-quality grains than rural consumers.


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The importance of this income effect is illustrated by the relationship between per

capita GDP levels and daily caloric intake.

More than 80 percent of the worlds population lives in countries where per capita

GDP is less than $10,000 per year, so even small economic gains have a signicant

impact on peoples ability to improve the quality of their lives. For many, it starts

with food.

We have all watched China begin its ascent up the economic scale and are

witnessing the immediate effects on consumption. Take India as another example.

India has 1.1 billion people, with the vast majority living on less than 2,500 calories

per day.

When you consider the long-term impact of Indias growing population gaining the

economic power to make even small increases in daily food consumption, it is clear

that food supply will be a critical issue for years to come.

Add to that growth in other developing countries and the pressure on global food

production rises signicantly.


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The desire in developing nations is not only for more food; it is for more

nutritious food.

Many people can now afford to have a larger percentage of their daily calories

come from fruits, vegetables, meat, eggs and sh. Still, there is a large gap between

developed and developing nations.

As demand for improved diets continues to grow, farmers will be challenged to

increase production of higher-quality foods. This raises demand for potash, which

is commonly called the quality nutrient because of its ability to improve the taste

and nutritional value of many crops.


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While population growth and higher incomes are recognized drivers of food

demand, each has a different impact on the global food story.

Consumption of staple crops such as rice and wheat is closely tied to population

growth. Rising animal feed requirements and demand for biofuels are driven by

improving economies and population growth.

Over the past 40 years, fruit and vegetable consumption more than tripled. This is

primarily a reection of the change in income levels, as consumers in developing

countries are increasing their spending on more nutritious foods.


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As we look ahead, global demand for grains and oilseeds is expected to increase

to nearly 2.7 billion tonnes in 2010 and to top 3 billion tonnes by 2020.

We expect seeded acres will remain at historically high levels as farmers work to

meet this demand, but there are limits on the amount of land that can be brought

into production.

Therefore, we believe approximately 90 percent of the necessary increase in

production will be generated by improving yields.


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There are a number of factors that inuence yield potential. Weather has

a signicant impact, as do planting density, cultivation practices, irrigation and

seed technology.

Fertilizer is another key factor and research has shown that 40 to 60 percent

of food production can be attributed to fertilization.

Given the need to increase production on existing acres, crop nutrition will be

a global priority in the years ahead.


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While seed companies are working to develop new higher-yielding varieties, there is

no escaping the need to ensure fertilizer applications replace nutrients drawn from

the soil with every harvest.

The simple fact is that higher-yielding crops remove greater volumes of nutrients

from the soil. To sustain the long-term productivity on existing agricultural land,

these nutrients must be replenished.


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Supported by rising global food demand and the scientic requirements of meeting

this demand, we believe our potash assets hold tremendous long-term potential.


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Potash is produced in a limited number of countries and approximately 80 percent

of the worlds sales volumes cross international borders.

With the rise of developing nations and the need to increase food production

all over the world potash demand has been growing. The path does not always

follow a straight line, but the progress of the path is undeniable.

In 2009, economic uncertainty was like a giant pothole and farmers and fertilizer

dealers put the brakes on potash purchases, choosing to draw down inventories

in the soil or their warehouses.

Now potash demand is regaining speed and we expect global shipments of

approximately 50 million tonnes in 2010. This is still below the estimated trend line

consumption of around 55 million tonnes, but reects the transition from the

historical low of 2009 and a return to higher demand in 2011 and beyond.

Basic crop science will make it necessary for applications to return to the historical

trend line growth because the simple fact is you cannot grow food without

nutrients. In addition, as distributors around the world begin to rell the supply

chain and farmers address shortfalls created by mining the soils in 2009, demand

could climb higher than trend line consumption.

The potential of potash is unique among the primary nutrients and provides

a signicant opportunity for our company.


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At PotashCorp, we focus on the long road and the anomaly of 2009 did not

shake our condence in future demand. While some producers across our industry

delayed or canceled projects as the economic downturn took hold, we continued

working on our projects in Saskatchewan and New Brunswick.

Our expansions are expected to represent more than half of the worlds capacity

additions between now and the end of 2014 and will raise our annual operations

capability to more than 17 million tonnes by 2015.

We also expect to see additional benets from our offshore investments in ICL in

Israel, APC in Jordan and SQM in Chile, as each of these companies has announced

capacity expansion plans.


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When looking at potash supply it is important to distinguish between capacity and

operational capability with the latter referring to what can actually be produced

on an annual basis.

We believe the potash industry currently has the capability to produce between

58-60 million tonnes of potassium chloride annually. This total has not signicantly

changed since 2007 when demand tested the operational capabilities of

the industry.

With a return to trend-line demand growth we anticipate supply will again be

challenged in the years ahead. This reinforces the importance of investment in new

capacity and is the reason we did not pull back on our expansions through the

economic downturn.

As our browneld expansions come on-line, we expect to capture the lions share

of demand growth over the next 5 to 10 years.

While we believe greeneld capacity will ultimately be required, the signicant time

needed to bring this capacity on-line means we have a reasonably clear picture of

the industrys supply capabilities for the next several years.

In this environment, we look forward to demonstrating our full potash potential.

We will always take a long-term approach to managing our business and believe

our company is very well positioned to deliver long-term value to all our

stakeholders.

Thank you for your interest in PotashCorp.

I will turn it back to Denita for our next presentation.

pot may 2010 agm part 1 potash of saskatchewan

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