Living in the topsy-turvy world of commodity prices where markets for grains, oilseeds, pulse crops, oil and potash are always uncertain, rural people know better than to panic over a bit of bad news.
Others now in full-scale panic over the admittedly bad news in the potash sector might be well advised to follow suit.
The relative on-going strength and success of the overall Saskatchewan economy and government finances may mean that we will weather the bad potash news better than we think.
For those of you who missed it — or perhaps missed the significance of it at the time — a move by a potash producer half a world away will supposedly hammer us hard here in Saskatchewan.
It was announced late last month that the Russian potash producer Uralkali would stop selling its potash through the Belarusian Potash Co. — a cartel similar to our own Canpotex that markets its product collectively to keep the prices higher.
Of course, we’re all taught that such free-market competition is a good thing and it is … if you are a buyer rather than a seller.
As a potash producing economy, anything potentially lowering the price can hit us hard. Consider the 2009 provincial budget when a predicted $2 billion in potash revenue for the province disappeared because Saskatchewan Party government officials bought into the potash industry’s overly rosy forecasts for sales and prices.
And as the biggest producer of potash — 20 per cent of the world’s supply, exceeding PotashCorp’s contribution _ anything Uralkali does is a big deal in the industry. By deciding to go it alone, it is expect that Uralkali will undercut potash prices. This could have a big impact on Saskatchewan government revenue.
Analysts suggest that potash prices could fall by 25 per cent to around $300 a ton compared with current prices of $400 a ton.
One analyst from BMO Capital Markets went so far as to call it “the end of the potash world as we know it” while the Royal Bank of Canada said the Saskatchewan economy would now be growing half as quickly as predicted.
In turn, the Royal Bank predicted this may reduce Saskatchewan’s GDP growth by a full percentage point, with further impacts down the road because of stalled potash mine construction.
Premier Brad Wall and his Sask. Party government responded by saying it was too early to tell — exactly what one might expect from a government because it is its job to downplay negative news and present an optimistic view for voters and potential investors in the province.
But if initial indicators mean anything, Wall and his government appear to be right.
The latest job statistics for July show 590,000 working people — an increase of 16,100 from a year earlier.
Of course, this means little in relation to the Uralkali decision that just happened. But considering where the jobs are being created, it does show that Saskatchewan is more than just potash.
Of more interest, however, is the news emerging from the Saskatchewan government that the surplus budget is still largely intact.
Despite a projected decline in forecasted potash revenues of $21.3 million, overall revenues for the 2013-14 budget are actually increasing by $11.3 million because of stronger oil prices.
Alas, our surplus is now expected to be smaller because of $43.6 million in extra spending — mainly for flooding assistance that the government didn’t adequately budget.
And things could potentially be worse on the potash front because the government predicted in its March budget a $122.5-million increase in potash revenue over the 2012-13 budget. It still may be over-estimating its potash revenue.
But what it does seem to show is the Saskatchewan economy is diversified and somewhat resilient.
In the unpredictable world of commodity pricing, it may be a little early to panic over potash.
Murray Mandryk has been covering provincial politics for over 22 years.