* Says hurt by lower prices, crop-nutrient margins
* Says well positioned for recovery in demand
* Shares fall 3.9 pct in morning trade (Adds background, updates share price move)
By Euan Rocha
TORONTO, Oct 23 (Reuters) - Canadian fertilizer maker and agricultural products retailer Agrium Inc (AGU.TO) (AGU.N) said on Friday it expects third-quarter earnings to be 90 percent to 95 percent below those of the year-earlier period, sending its shares down 3.9 percent.
Calgary, Alberta-based Agrium, which is locked in a lengthy battle to take over U.S. rival CF Industries (CF.N), said the sharp decline in profits is due primarily to lower prices and margins for nitrogen, phosphate and potash -- the three main crop nutrients used by farmers across the world.
Fertilizer producers reported record profits a year ago, when grain prices soared, driving a huge increase in fertilizer demand and a big spike in pricing. However, the global economic slump, tight credit markets and weakened grain prices have hit the sector in the last 12 months, leading to major production cuts and significantly weaker profits.
Agrium's profit warning comes a day after world's largest potash maker, Potash Corp of Saskatchewan (POT.TO) (POT.N), reported an 80 percent drop in profits in the third quarter as fertilizer demand and pricing weakened, prompting it to dim its outlook for the potash sector. [ID:nN22505738]
Earlier this month, U.S. fertilizer producer Mosaic Co (MOS.N) reported a 91 percent drop in its financial first-quarter profit, but expressed optimism that farmers would increase fertilizer purchases in the near future. [ID:nN05370862]
Agrium also said that weak fertilizer demand, coupled with a 40 percent decline in fungicide sales this summer, hurt its retail business during the quarter.
It will report its third-quarter results on Nov. 4.
Shares of fertilizer producers are down sharply from the record highs they hit in mid-2008. But the more attractive share prices have led to a flurry of merger and acquisition speculation.
Earlier this week, Agrium agreed to sell part of a nitrogen fertilizer facility to rival Terra Industries TRA.N in a bid to overcome regulatory issues related to its hostile takeover bid for CF. The proposed stake sale could also stymie CF's own hostile bid for Terra. [ID:nNN1934143]
Fertilizer producers say that farmers across the globe cannot indefinitely cut, or delay, fertilizer application as this is likely to hurt yields.
Agrium said it is well positioned for an anticipated recovery in crop input demand in 2010.
"If the wet weather in the U.S. continues and shortens the fall (fertilizer) application season, it is expected to push fall nutrient demand into the spring of 2010," Agrium said in a statement.
Shares of Agrium were down C$2.33 at C$57.40 in morning trade on the Toronto Stock Exchange on Friday. ($1=$1.05 Canadian) (Reporting by Euan Rocha, editing by Peter Galloway)