Will Potash Corp. Bounce Back Faster Than Mosaic and Agrium?

Potash Corp. (POT) will release its quarterly report on Thursday, and investors are already prepared to suffer from the fallout of the break-up of a Russian potash cartel. But even as industry experts bemoan Russian giant Uralkali's decision to break up the cartel, the key question for PotashCorp investors is whether it will fare better than rivals Mosaic (MOS 0.59%) and Agrium (NYSE: AGU). With Mosaic, Agrium, and PotashCorp all being members of their own Canpotex export cartel, it remains to be seen whether all three will suffer the same fate or if PotashCorp has a chance to outshine its rivals.

The fertilizer industry seems like a natural place to find winning stocks in recent years, with high crop prices supporting farmers' efforts to boost crop volumes and productivity. Yet the plunge in natural-gas prices left potash-based fertilizers at a competitive disadvantage to nitrogen-based fertilizer alternatives because of cost. Now that potash prices could fall even further, PotashCorp needs to demonstrate superior management skills in order to contain costs and maximize profits. Let's take an early look at what's been happening with PotashCorp over the past quarter and what we're likely to see in its report.

Stats on PotashCorp

Source: Yahoo! Finance.

How badly will PotashCorp earnings get hit?
Analysts have greatly pulled back on their views on PotashCorp earnings in recent months, cutting third-quarter estimates by more than 40% and reducing their full-year 2014 projections by almost 30%. The stock has taken a nosedive, falling more than 15% since mid-July.

The news that shook PotashCorp, Mosaic, Agrium, and many other potash players around the world came in late July, when Uralkali broke up its cartel arrangement with Belaruskali. With Uralkali's cartel controlling 43% of potash exports, investors feared a huge potential drop in potash prices that could crush profitability across the industry.

Even before the news, though, PotashCorp wasn't enjoying very good conditions in its core markets. In its second-quarter report, PotashCorp cut its full-year earnings outlook by about 10% and announced that it would shut down production facilities to try to balance supply and demand. Unlike Agrium, which also produces nitrogen-based fertilizers and gets only a small portion of its revenue from potash, PotashCorp doesn't have the diversification to help it weather a prolonged downturn in potash prices.

Despite the potash industry's troubles -- or indeed, because of them -- shrewd investors are starting to take advantage of weak prices. China's sovereign wealth fund recently took a 12.5% stake in Uralkali, capitalizing on the disruption of Russia's cartel and seeking to profit if potash prices stabilize and move higher. Last month, news that a major investor in Uralkali might sell his stake led to speculation that its cartel could reform -- presumably lifting PotashCorp, Mosaic, and Agrium back toward their pre-breakup levels.

In the PotashCorp earnings report, look closely to see how badly the breakup of the Russian cartel has damaged the potash market. In particular, if Agrium and Mosaic hold up better than PotashCorp, it could spell long-term trouble for investors. But if PotashCorp surprises on the upside, it could make a good value investment for risk-tolerant buyers.

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