Potash Corporation of Saskatchewan (POT) is the world's largest fertilizer producer, provides potash, phosphate, and nitrogen fertilizer products to farmers around the world.

The last commodity fertilizer bull run saw the share price of Potash increase ninefold from the end of 2005 until June 2008. The collapse of commodity prices resulted in Potash losing three-quarters of its value by the bottom of the bear market in 2009.

Since that market bottom, the share price of Potash has again tripled.

For the first quarter of 2011, Potash reported net income of 84 cents per share, up 71 percent from the 44 cents earned in the same quarter of 2010. The actual earnings were just above the Wall Street consensus of 80 cents per share.

The company's first quarter earnings report painted a picture of rising demand plus tightening supply leading to higher prices for all fertilizer products. According to reports, many global potash producers already have sold out of second-quarter production.

There are negatives. Global competitors can increase potash production, and a supply disagreement continues with North America's second-largest fertilizer producer, Mosaic (MOS). Mosaic has been providing product from a Saskatchewan potash mine to Potash at cost and now has terminated that agreement.

The disagreement may end up in court. And Russian fertilizer company Uralkali is buying Silvinet, a competing Russian company, to pass Potash as the world's largest potash producer.

Earnings lag actual prices

The earnings estimates for Potash are a quarterly net of 80 cents to 85 cents per share for the rest of 2011, for total annual earnings of $3.36 per share. The consensus estimate for 2012 is $3.86 per share. These numbers seem to be seriously lagging the current rate of increase of the prices of fertilizer products.

With the price pullback of Potash in the first two weeks of May, UBS reiterated its positive assessment of Potash and raised the target price from $66 to $70 per share. At the high end, that’s a 38 percent premium to recent trading action.