U.S. Markets closed

Potash Cartel Collapse Spurs Sharp Fertilizer Stock Sell-Off

Russia's Uralkali Group, the world's largest fertilizer producer, set potash stocks reeling Tuesday by pulling out of a cartel and vowing to ramp up production, a move that threatens to crash the $20 billion-a-year market.

The top six fertilizer makers control about 80% of potash production in two consortiums, analysts estimate. Uralkali, Plymouth, Minn.-based Mosaic (MOS), Canada's Agrium (AGU) and Potash Corp. of Saskatchewan (POT) have played off each other to stabilize prices for potash, one of the most commonly used ingredients for fertilizers.

Mosaic shares, which had been sinking in recent months, fell 18% Tuesday. Agrium lost 5%, Potash 16.5% and Intrepid Potash (IPI) 29%.

Stirring The Potash

Uralkali said it's ending its joint venture with Belarusian Potash Co.

Uralkali and Belarusian parent Belaruskali set up the BPC venture in 2005 to boost their market position. The Russian fertilizer giant blamed the Belarus government's decision to cancel BPC's exclusive right to export the country's potash.

Uralkali says it expects to boost its potash output to 13 million tons in 2014 from 10.5 million this year. Prices should fall significantly, CEO Vladislav Baumgertner said.

That's bad news for rival fertilizer makers, who will likely see sales and earnings fall.

It's seen as good news for farmers, who will pay lower prices for fertilizer if Belarus doesn't take action to woo Uralkali back into a partnership.

Shawn Hackett, author of the Hackett Money Flow Commodity Report, says the short-term boost could be a long-term drag for farmers. Lower fertilizer costs could encourage more plantings and boost harvest, hitting already-falling crop prices.

"Although fertilizer cost would fall, that's just one component," Hackett told IBD. "Insecticide, seeds and land rental costs won't fall much, if at all.

As a result, he said, "every farmer could have substantially lower revenue next year.

Hackett said Belarus may try to lure Uralkali back to the negotiating table: "Whenever you have governments and money, no one wants to see the pie shrink too much. Everyone wants to make money.

Anna Kolonchina, a Uralkali director, says in a statement on Uralkali's website that the board fully backs the decision.

"We view the fundamentals of the potash industry as strong and have confidence in the growth potential of this market," she said.

Meanwhile, CF Industries (CF), with less potash exposure than many peers, fell 2.5%. Swiss-based Syngenta (SYT) edged lower.

IBD's Chemicals-Agricultural group is ranked 191 out of 197.