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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PotashCorp Analyst Day: Potash Market Drivers 3
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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PotashCorp Analyst Day: Potash Market Drivers 4
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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PotashCorp Analyst Day: Potash Market Drivers 6
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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PotashCorp Analyst Day: Potash Market Drivers 7
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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PotashCorp Analyst Day: Potash Market Drivers 8
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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PotashCorp Analyst Day: Potash Market Drivers 9
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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PotashCorp Analyst Day: Potash Market Drivers 10
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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PotashCorp Analyst Day: Potash Market Drivers 12
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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PotashCorp Analyst Day: Potash Market Drivers 13
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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PotashCorp Analyst Day: Potash Market Drivers 14
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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PotashCorp Analyst Day: Potash Market Drivers 15
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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PotashCorp Analyst Day: Potash Market Drivers 16
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.
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