Agrium predicts 30% drop in potash sales

Fertilizer giant Agrium (TSE:AGU) lost almost 3% on Monday on higher than usual trading volumes, despite hiking its payout to shareholders by 50%.

What scared investors in the $13 billion company was a warning on a steep drop-off in sales predicted for its third quarter.

The Calgary-based producer forecast a decline of 30% in phosphate and potash sales, while nitrogen sales were expected to fall by 20%.

The potash price has been under pressure since Russian giant Uralkali (MCX:URKA) announced at the end of July it's ending the decades-old distribution arrangement with neighbouring Belarus's state owned potash miner.

The two companies controlled roughly 43% of global exports and combined with the Canpotex selling organization which represents North American giants Agrium, Potashcorp (TSE:POT) and Mosaic (NYSE:MOT) were able to heavily influence the price of the crop nutrient.

A price of $300 a tonne for potash is now forecast before the end of the year from a Vancouver FOB price of around $400 a tonne at the moment.

A sub $300 a tonne price is a world away from five years ago when rising Chinese and Indian consumption drove the potash price from $100 a tonne in 2004 to almost $900 in the run up to the global financial crisis.

Longer term Agrium is more bullish about the prospects for the sector:

“The dividend increase demonstrates our confidence in the ability of the business to generate significant cash flow and is an indication of the strength of our position across the crop-input value chain,” Agrium CEO and president Mike Wilson said in a statement.

“Despite short-term headwinds for our wholesale business unit this quarter, the long term fundamentals of our business remain strong and we expect significant crop input demand as we move into the fall season.”