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Potash Falls as Prices Weaken

Potash shares fall sharply Friday as prices show signs of weakness and traders respond to technical breakdown in the stock.
Author:

(Updated for closing stock prices.)

NEW YORK (

TheStreet

) --

Potash

(POT)

shares declined sharply for the second day in a row as investors worried about weakening prices for the company's eponymous crop nutrient.

A technical breakdown in the stock also helped push Potash shares lower, said Steve Spencer, a partner at the trading firm SMB Capital. When the shares failed to rally beyond the key support level of $110.50, market players dumped them en masse, he said.

"As more and more people saw the weakness below 110 there was panic all the way down to the 106 support level" established back on Nov. 17, Spencer wrote in an email. As for him, Spencer said he went long Potash after quickly shorting the company's shares between that range of $110 to $106.

On the fundamental side, global prices for potash appeared to be under attack. The chief executive of

BPC

, a big Russian potash miner that owns 30% of the global market, told

Reuters

Thursday that his company was selling the crop nutrient to Brazil for $400 a ton, well below what industry observers had expected. Two weeks ago, the going rate for potash was $520 a ton.

"The Russians caved on price yet again," one analyst said.

Another analyst, Mark Gulley, of Soleil Securities, downgraded Potash to sell from hold Friday, based largely on the stock's sharp rally since early October. Between then and the beginning of December, the shares climbed 45% to a new 52-week high on the back of what many believed to be an improving outlook for agriculture as the global recession eased.

Gulley also mentioned the recent potash pricing weakness as a factor behind his downgrade, as well as word from Brazil's

Vale

(VALE) - Get Report

that it plans to build a new potash mine in Argentina. (Earlier this year, Vale bought undeveloped potash assets there and in Canada from

Rio Tinto

(RTP) - Get Report

for $850 million.)

"Commodity investors know the drill. As greenfield plants move closer to fruition, it's time to exit a sector," Gulley wrote in his research note, referring to new production facilities.

In New York earlier this month,

TST Recommends

Potash CEO Bill Doyle said

his company had seen stronger demand in November than any month since May 2008. And a week ago, an analyst at

Goldman Sachs

(GS) - Get Report

upgraded Potash shares based on a brightening

forecast for potash sales

next year.

Shares of the Saskatchewan-based Potash closed Friday's regular session at $105.01, down $6.83, or 6%, on volume of 17.2 million shares, more than double the daily average of about 7 million. The loss follows a 5.8% drop on Thursday.

Potash rival

Mosaic

(MOS) - Get Report

lost 1.5% to $55.22 Friday, while shares of the hostile-takeover-fatigued fertilizer-war triumvirate of

Agrium

(AGU)

,

CF Industries

(CF) - Get Report

and

Terra Industries

(TRA)

all declined by more than 2%.

-- Written by Scott Eden in New York

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