If sales volumes of a company suddenly take a hit after months of record-breaking levels, it is perhaps time to draw out the yellow flags. PotashCorp's (NYSE: POT) shipments dropped significantly in its fourth quarter, denting the company's top line and margins.

Is this just a one-quarter event? I don't think so. It's likely to spill over into the next quarter, giving investors less reasons to cheer.  

The tables have turned
Sales volumes in PotashCorp's largest segment, potash, fell 33% from the comparable period last year. Demand from North America was particularly weak. Economic uncertainty has been holding buyers back from building up inventories for some months. As a result, PotashCorp's shipments fell sharply by 50% from the year-ago quarter.

The emerging markets are getting cautious, too. Canpotex, the three-member legal cartel PotashCorp is part of, didn't get any new contracts during the quarter. More than 40% of its shipments were related to previously committed orders from India and China.

The scene was no different for the other two nutrients PotashCorp deals in -- phosphate and nitrogen. Volumes for both declined, and the scenario is likely to remain bleak in the near future.

Stay cautious
A lot of factors hint at a lukewarm forthcoming quarter for the company. As I mentioned earlier, Canpotex's order bag isn't heavy as of now. The contract with China was over in the fourth quarter, and the one with India will expire in March. New contracts haven't been forthcoming, and it could be some time before we see them flowing, with possible delays in new potash contracts from India until July.

PotashCorp will also not be operating at its full capacity in the next quarter. The company has shut down three of its plants in recent weeks. This production cut, along with peer Mosaic's (NYSE: MOS) similar move to reduce phosphate production in the next three months, reflects how subdued the demand for fertilizers currently is. Mosaic, which is also a member of Canpotex, is expecting cautious buyer behavior to prevail.

Along with volumes, prices may be a spoilsport too. The recent fall in benchmark prices is likely to weigh on the company's realizations in the next quarter. Average selling prices for potash were already lower in the fourth quarter as compared to the preceding one.

To make things worse, PotashCorp's cost of goods sold will go up in the next quarter because of the downtime (pertaining to year-end inventory accounting) at the company's potash facilities.

The Foolish bottom line
I do not have high expectations from PotashCorp for the next quarter. Fertilizer buyers seem to be taking it easy after the mad rush for purchases last year. Although the long-term outlook for Potash appears bright, I suggest staying on the sidelines in the near term.

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