The global economic slowdown will only be responsible for a relative pause to the great commodities cycle. Prices will adjust, and the best companies will benefit.

But the global emerging market industrialization and urbanization process continues at an unprecedented pace of epic proportions. Please take the time to read last week’s issue for our assessment of the commodities market going forward. See VRI, 2 October 2008, The Great Pause.

Our top five stocks from the VRI Portfolio are, in order of preference: Rio Tinto (NYSE: RTP), Paladin Energy (Australia: PDN, OTC: PALAF), Xstrata (UK: XTA: OTC: XSRAF), China Green Holdings (Hong Kong: 904, OTC: CIGEF) and Monsanto (NYSE: MON). See VRI, Sept. 25, 2008, The Bailout and Beyond.

Investing in agriculture-related companies has been one of our main themes for the past year, and we still favor it. See VRI, 8 November 2007, Hungry Like the Wolf. This week we’re adding a new stock to the portfolio that should benefit from the increasingly higher global demand for fertilizer. See chart below.

Potash Corp (NYSE: POT) is the world’s largest and lowest-cost publicly traded potash producer, the fastest-growing segment in the fertilizer business. Its potash reserves are sufficient for more than 100 years of production. The company controls about 70 percent of the world’s excess capacity. Potash Corp is also the world’s third-largest phosphate producer and fourth-largest nitrogen producer. Current phosphate reserves should last more than 50 years.

The company’s low-cost production achievement is an important asset as potash is the highest margin nutrient, and its production process has historically created higher barriers to entry for potential competitors. As a result, the company’s pricing leadership has remained one of its big assets.

Potash Corp has historically been a strong cash flow-generating company that used its cash to consolidate its position through outright acquisitions and by taking substantial stakes in other companies around the world.

As a result, Potash Corp owns 21 percent of Sinofert Holdings, the biggest producer and distributor of fertilizers in China, giving it even more access in this rapidly growing market.

It also owns 10 percent in Israel Chemicals–one of the global leaders in chemicals production used for the improvement of agricultural, industrial and consumer and fertilizer products.

Potash Corp owns 28 percent of the Jordan-based Arab Potash Company (APC), which develops the minerals of the Dead Sea. APC produces potash for agriculture, industrial potash for the chemical industry, industrial salt, bromine and nitrogen, phosphorus and potassium (NPK) fertilizers.

The company also owns 32 percent of Chile-based SQM, a worldwide leader in the production of specialty plant nutrition, iodine and lithium.

Finally, Potash Corp is part owner of Canpotex–a distribution company and the world’s largest exporter of potash–together with Agrium Inc. and The Mosaic Company.

This week we’re closing our positions in Dupont (NYSE: DD) and The Andersons (NSDQ: ANDE). We’re selling out of the former as Monsanto is a more leveraged play in the seeds sector, and we prefer to concentrate our fire power there. We’re selling The Andersons because we believe it’s better to own larger companies at this juncture in the markets.

Finally, the “How They Rate” feature will be dropped for now as we redesign the VRI Web site. As a result, we’ll expand the portfolio coverage to span a greater amount of companies to give you a wider selection for potential candidates for you portfolio.

Monsanto has sold off viciously over the past month as agriculture-related companies have been hammered by fears of a global economic slowdown. And although recession fears are justified in pushing down the prices of metals and energy commodities, it makes little sense regarding food.

In fact, Monsanto has continued to perform well from an operational perspective, having narrowed its net loss in the traditionally slow fourth quarter to $172 million, or 31 cents a share, from $210 million, or 39 cents, a year earlier. Excluding several one-time items, earnings per share would have reflected a loss of only 3 cents.

Fourth quarter earnings are always a bit light, given the highly cyclical nature of agriculture. And although the company has a strong presence and higher growth rates in Asia and South America, the bulk of its earnings are still generated in North America, where crops have already been planted.

Those results were largely driven by improved net sales, which increased 35 percent over the same period last year, reaching almost USD2.1 billion. Gross profit on soybean seeds and traits was a major factor in that, jumping 986 percent from the fourth quarter of 2007 and up 23 percent for the full year versus 2007. Profits on vegetable seeds also grew an impressive 48 percent in 2008.

Total profit in 2008 rose 46 percent over the previous year, reaching USD6.18 billion, as profits from its Roundup weed killer product doubled and profits from seed production and genetic technology licensing unit gained 28 percent.

The prospects for the next four years are also encouraging. It’s estimated that gross profits will be in the range of USD9.5 billion to USD9.75 billion by 2012, due to low grain stockpiles and increased Chinese demand.

So although ag-stocks may be selling off, emerging markets consumers are continuing to enjoy a higher standard of living, which translates into demand for higher-quality food. The global population also continues to grow, though the pace has moderated somewhat over the past decade. But more food still needs to be produced from an ever-shrinking supply of arable land.

That creates a need for the genetically modified (GM) seed products Monsanto offers, which greatly increases yield, sometimes as much as three-fold, for some crops. See VRI, 17 July 2008, The Switch.

Norilsk Nickel (OTC: NILSY) reported a less-than-stellar performance in the first half of 2008, with revenue rising 5.4 percent over the first half of 2007, but net profit plunged 33.2 percent.

That’s actually not as bad as it would seem on the face surface, however. Revenue from metal sales fell by 6 percent as nickel sales dropped by 25 percent, which was expected considering the metal’s price fell by 38 percent.

Cash operating costs posted 35 percent year-over-year growth, but that was primarily due to the fact that operating costs for all Norilsk Nickel International subsidiaries were consolidated for the whole first half of 2008, which is the first time that’s been the case. Exchange rates also posed an issue in reporting because, although the company does business in Russian rubles, it reports in US dollars.

Norilsk also decided to postpone its Activox Refinery Project in Botswana after a feasibility study found that the project was facing substantial cost escalations in the current environment, generating total impairment charges of about USD1.09 billion.

There was improvement in the sales of other metals, however, with revenues from the sale of platinum and gold up 63 percent and 49 percent, respectively. Copper sales also improved 35 percent, generating almost USD1.6 billion in revenues, versus USD1.2 billion in the first half of last year. Revenues from non-mining operations skyrocketed 357 percent to USD1.1 billion.

All in all, the results aren’t as weak as they appear, though Norilsk Nickel’s earnings will remain under pressure as long as the global economy remains weak and until the price of nickel stabilizes. See VRI, Sept. 11, 2008, Resources: The Long View.