Published: Thursday, 22 Oct 2009 | 12:14 PM ET

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Potash of Saskatchewan said on Thursday that its quarterly profit fell 80 percent as fertilizer demand and pricing weakened, prompting it to dim its outlook for the sector and sending shares lower.

The company, the world's largest producer of potash, still anticipates rebound in demand for the crop nutrient in 2010, but it expects some of its production capacity will remain idle through the year.

"The uncertainty among fertilizer buyers has lasted far longer than we anticipated, but cannot continue indefinitely," said Chief Executive Bill Doyle in a statement.

The global recession and a collapse of grain prices have severely hit fertilizer producers and have resulted in the sharpest drop in potash demand on record. Purchases of nitrogen and phosphate -- the other two key crop nutrients -- have also slowed.

An expected rebound in demand from both global and North American fertilizer buyers has been slow to materialize.

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[POT  Loading...      ()   ] expects global potash demand of about 50 million tonnes in 2010, which is at the low end of the 50 million to 55 million tonnes range forecast in September. In July, the company saw 2010 demand at between 55 million and 60 million tonnes.

In 2008, the company produced 8.7 million tonnes of potash, which improves crop quality, bolsters disease resistance and increases yields. That represents 47 percent of North American output and about 17 percent of global production. Potash Corp currently expects 2009 potash shipments of 3 million to 3.2 million tonnes.

Morningstar analyst Ben Johnson expects operating rates below full capacity next year, but substantially higher than rates in 2009.

"We are going to start lapping some fairly easy comparisons headed into 2010, so I would expect an improvement in profitability, despite the fact that there is still downward price pressure in the potash markets," said Johnson.

The Saskatoon, Saskatchewan-based company's net income dropped to $248.8 million, or 82 cents a share, in the three months ended Sept. 30, from $1.24 billion, or $3.93, a year earlier.

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Analysts on average expected earnings of 81 cents a share, according to Thomson Reuters.

In 2008. the company reported a five-fold increase in profits, when potash market conditions were tight and pricing was at all-time highs.

The company, which initially forecast third-quarter earnings of 80 cents to $1.20 a share, last month narrowed expectations down to the low end of this range.

Potash expects fourth-quarter earnings of 65 cents to 85 cents a share. Analysts are expecting $1.24, according to Thomson Reuters.

The company also expects full-year 2009 earnings to be at the low end of its previously forecast range of $3.25 to $3.75 a share.

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