Potash Corp. of Saskatchewan (NYSE:POT) is the world's largest fertilizer company by capacity, producing the three primary crop nutrients: potash, phosphate and nitrogen. Potash is the worlds' leading potash producer and is responsible for about 20% of global capacity. It is the third-largest phosphate company in the world and has the phosphate industry's most diversified product line (liquid, solid fertilizer, feed and industrial). Potash has operations and business interest in seven countries and is a key player in the growing challenge of feeding the world. Potash products help provide the primary nutrients that crops need, in addition to nutrients that are used to make livestock feeds and industrial goods.
Millions of people with rising incomes want to feed their families better diets, with high quality fruits and vegetables and protein from meat. With pressure on global crop supplies mounting, the need to substantially increase production is clear. This demand is supporting strong prices for a wide range of crops grown globally. Farmers are responding by increasing yield by applying more fertilizer, especially potash.
World crop consumption is forecast to grow from 3.4 billion tones in 2000 to 4.9 billion tones in 2020. Each year, the global population is expected to grow by about 75 million; by 2020 the world population will have grown by almost 800 million. Most of this growth is occurring in developing countries, along with the priority for most people to improve their diets. Ongoing economic growth will continue to improve the affordability of and increase the desire for more and better food.
First-quarter potash gross margins decreased drastically by 56% from the same quarter last year, which saw record gross margins. Sales volumes of 1.2 million tons fell below the record 2.8 million tons in the same quarter last year. This change reflected slower movement to all major markets. A primary reason for this was that distributors deferred major purchasing ahead of the spring planting season and customers continued to work through inventories. The average realized potash price of $435 per ton was up 19% from last year's first quarter, reflecting price gains in spot and contract markets.
First-quarter phosphate gross margins increased slightly by 1.3% from the same quarter last year. Phosphate sales volumes totaled 0.9 million tons, up slightly from last year's first quarter. A larger percentage of sales allocated to meet offshore fertilizer demand, combined with strong feed and industrial volumes, helped offset weakness in North American fertilizer markets. The average realized phosphate price climbed to $607 per ton for the quarter, 9% above that of the same period last year.
Nitrogen gross margins climbed by 7% to a first-quarter record. Sales volumes of 1.3 million tons were slightly below the same period last year, largely as a result of reduced production at Geismar. Average realized prices for nitrogen products rose to $383 per ton for the quarter, 4% above the same period last year.
Becoming a producer in potash is difficult. With limited viable deposits worldwide, billions of dollars in development costs, and lead times of seven years or more, barriers to entry in this industry are considerable. With recent trends pushing global producers to or near their capacity limits, rising demand is likely to challenge supply over the coming years. This supply and demand imbalance will help Potash manage pricing pressures that might occur if there is a global slowdown.
These positive scenarios seem to have not materialized for Potash. There are couple of factors that have contributed to this: a temporary oversupply in the market, lower demand then previously forecast due to a slowdown in a global economic activity, and climate conditions globally that have limited crop production.
Given these headwinds, I do not expect fertilizer prices to fall much lower. Rather, I believe they will stabilize in the coming quarters. The recent Chinese contract settlements, along with high spring demand requirements in the Northern Hemisphere, should drive strong volume recovery and price stabilization. Fertilizer companies will play a pivotal role as the global population continues to grow and the need to meet the world's food demand increases. At the end of the day, having a little Potash in your portfolio in uncertain times might not be a bad idea.