China introduced a 35 percent tax on phosphate and nitrogen exports during the first quarter to protect its domestic supply, and then raised it to 135 percent effective from April 20 to September 30, 2008. Phosphate supply tightened further in May when a severe earthquake struck Sichuan Province, which produces 11 percent of China's phosphate rock and a significant amount of related downstream fertilizer, feed and industrial products.

Phosphate producers without an integrated supply of phosphate rock continued to be affected by rising costs for key inputs. The price of rock from Morocco rose to $350-$400 per tonne, compared to $190 in the first quarter of 2008.

High costs for sulfur and phosphate rock are unlikely to abate, and industry consultants expect that contracts for Moroccan rock could reach $450-$500 per tonne in the third quarter.

We believe the recent attention to issues of food production and food security is a necessary and positive development, as those issues are a long-term reality underpinning growth in the fertilizer industry. Global population continues to rise by an estimated 77 million people per year, with the largest portion of that growth occurring in countries with increasing economic strength such as China and India. Improving diets, specifically adding more protein from animal sources, is a priority in these regions and is putting considerable pressure on global grain supply.