PotashCorp warned of further cutbacks to potash production, which it has already slashed by 73%, as it reduced its 2009 profits target for the second time in the face of a record cut in use of the nutrient.

However, news of an 850,000 tonne deal with India helped its shares soar 7%.

The Canadian fertilizer giant sliced to $4.00-5.00 a share, from $7.00-8.00 share, its forecast for annual earnings, reflecting an expected fall to 4.5m-5.0m tonnes in potash sales.

The group, which in April forecast that it would shift 6m tonnes this year, sold 8.55m tonnes of potash in 2008.

The new guidance leaves PotashCorp on course to report a drop of more than half in annual earnings, breaking a five-year streak of record results.

Mothballed production

The group blamed the decline on "extreme caution" amongst fertilizer buyers, with potash applications in North America down a record 40% in the 2008-09 fertilizer year, which ended last month.

PotashCorp said it would raise production cutbacks - which amounted to 50 mining weeks in the second quarter, compared with a fortnight a year before – above the 4.7m tonnes already announced.

"As we have for the past two decades, we will match our production to demand," the group said.

'Upward trend undeniable'

However, the group forecast a "strong rebound" in potash demand in 2010 as rising food requirements prompt farmers to return to maximising yields.

Group chief executive Bill Doyle said: "We have often said that demand for your living-giving nutrients does not grow in a straight line. But we believe the upward trend is undeniable.

"After almost a year of unprecedented global destocking, we are now beginning to experience the re-emergence of demand in key markets."

Market reaction

In the second quarter, group earnings tumbled 79% to $189.1m on revenues down 67% at $856.0m.

However, the weakness has been factored in by analysts following a profits warning last month.

And investors cheered a $460-a-tonne supply agreement with India which, although at prices below other recent deals, raised hopes of helping reboot global demand.

PotashCorp shares overcame early weakness to stand Can$6.99 higher at Can$104.49 in afternoon trade in Toronto.