When we last checked on the potash market, one producer had finally blinked, cutting prices for the first time since 2006. Today, PotashCorp (NYSE:POT) announced a different kind of cut.

Following its 2-million-metric-ton curtailment in late 2008, the market leader is now reducing its potash supply by a further 1.5 million tons.

In PotashCorp's recent market analysis report -- an easily digested quarterly slideshow that joins Monsanto (NYSE:MON) presentation material in my agricultural must-read pile -- the company pointed out that producer inventories have swung from record lows to 39% above the five-year average. Potash players ranging from PotashCorp to K+S and Intrepid Potash have been very disciplined in their supply response.

PotashCorp continues to lead by example in its quest to hold the line and match supply to demand. If the company is correct in its analysis, this approach may bear fruit as soon as the back half of 2009, as inventories become depleted across the supply chain.

Given the current supply/demand imbalance, it might seem odd to read that BHP Billiton (NYSE:BHP) is looking at building not only the first new potash mine in two decades, but what would amount to the biggest potash mine in the world. That's exactly what's going on up in Saskatchewan, however. Whereas Rio Tinto (NYSE:RTP) unloaded significant potash holdings on Vale (NYSE:RIO) earlier this year, BHP is moving ahead with a prefeasibility study of its massive Jansen Project -- 100% owned since BHP's takeout of its junior partner near the peak of Potashapalooza.

If PotashCorp's market analysis is to be believed, a new mine wouldn't be cash flow positive for at least seven years. That's a key piece of the thesis with regard to the competitive advantage held by PotashCorp and Mosaic (NYSE:MOS), which can meaningfully expand capacity at existing mines with a much quicker return on investment.

To whatever degree there was a fertilizer bubble last year -- I'm still not sure about that one -- the euphoria has passed. If folks like BHP and Agrium (NYSE:AGU) do advance their "greenfield" mine plans, the potash market could have serious legs. If these plans get canned, today's incumbents look just that much more intriguing.

Motley Fool CAPS players are pumped about Mosaic, awarding the fertilizer firm a coveted five-star rating. Cast your own vote on Mosaic's likelihood of stomping the S&P right here.

Fool contributor Toby Shute is active in CAPS under the moniker TMFSmashy, but he doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.