Breaking News

Hess Second-Quarter EPS $1.38 Compared With $1.18 Estimate; Buyback Boosted to $6.5 Billion

Potash Shake-Up Takes Toll as Agrium Sees Drop in Sales

Agrium Inc. (AGU) is the latest North American potash producer to cut its sales forecast as the breakup of the world’s largest marketing bloc for the crop nutrient begins to take its toll.

Agrium, the third-largest North American producer, expects to sell 30 percent less potash in the third quarter and forecast a 64 percent drop in profit from its wholesale fertilizer division, the Calgary-based company said yesterday. U.S.-based Mosaic Co., the second-biggest producer, cut its sales forecast by about 20 percent on Sept. 16.

The two companies form an export group, Canpotex Ltd., with Potash Corp. of Saskatchewan Inc., North America’s biggest producer. Potash Corp. won’t be spared the drop in demand, said Peter Prattas, an analyst at Cantor Fitzgerald LP in Toronto.

“They’re all going to hurt equally given the fact that they’re a collected group,” Prattas said yesterday in a telephone interview.

The potash market has been roiled since OAO Uralkali, the world’s largest producer, announced it had pulled out of an export sales venture with its Belarusian counterpart on July 30. The Berezniki, Russia-based company said it would boost output and start selling at lower prices, a move that sent shares of fertilizer companies such as Potash Corp. and Tel Aviv-based Israel Chemicals Ltd. (ICL) falling. Potash Corp. has declined 15 percent since the day before the Uralkali announcement while ICL has declined 16 percent.

‘Essentially Paralyzed’

Potash Corp. Chief Financial Officer Wayne Brownlee said during a Sept. 18 investor conference in New York that volumes in offshore markets “have been essentially paralyzed.” He is scheduled to give an update on the company’s activities today at a conference in Toronto.

Buyers are holding back, in anticipation that prices will sink, before stocking up on the crop nutrient, said John Hughes, an analyst at Desjardins Securities Inc. in Toronto.

“Why buy today at 400 bucks U.S. a ton potash if the general perspective is we’re going to head to $300 or $350?” Hughes said yesterday by phone.

The change is affecting Uralkali as well, Danila Yakub, a Moscow-based analyst for UBS AG, said in a Sept. 20 report. Russian customs data suggests September exports may be down 40 percent from the average of the prior 12 months, Yakub said.

Agrium, which also produces nitrogen and phosphate fertilizers and is the largest U.S. farm-products retailer, forecast third-quarter wholesale fertilizer sales that were worse than estimated, Hughes said.

Lower Prices

“Most were looking for maybe a 15 or 20 percent decline in sales volume, and we’re getting a 25 to 30,” he said.

Potash, which helps strengthen plant roots and improve resistance to drought, isn’t traded on public exchanges. Prices for delivery at Vancouver’s port have fallen to $410 a metric ton, 19 percent less than a year earlier, according to data from Green Markets, a fertilizer-industry information provider that is a unit of Bloomberg LP, the parent of Bloomberg News.

The average retail potash price in 11 U.S. states has declined 11 percent to $538.93 a ton since the Uralkali breakup, according to data from Green Markets.

Prattas said global prices may decline further.

“In order for volumes to recover, the price does have to come down lower,” he said.

The first big step to reforming the Russia-Belarus export group is to return Uralkali Chief Executive Officer Vladislav Baumgertner to Russia, Hughes said.

Baumgertner was arrested in Minsk on Aug. 26 on charges of abuse of office as chairman of the joint venture. A meeting between Russian President Vladimir Putin and his Belarusian counterpart Aleksandr Lukashenko signals Baumgertner may be released soon, Hughes said.

The marketing group, formerly known as Belarusian Potash Co., may be back together by the end of the year, he said.

Even so, a reunification of potash producers in the former Soviet Union doesn’t mean prices will increase, Prattas said. The two companies may agree to keep volumes high and prices low, he said.

“That’s yet to be determined,” Hughes said.

To contact the reporter on this story: Gerrit De Vynck in Toronto at

To contact the editors responsible for this story: Simon Casey at; David Scanlan at

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.