The global market for potash, a key crop nutrient, is dominated by two main distributors, Canpotex and the Belarusian Potash Company (BPC), which together account for about 70% of global exports.

Canpotex is owned by Potash Corp. of Saskatchewan (NYSE: POT), Mosaic Co. (NYSE: MOS) and Agrium Inc. (NYSE: AGU), while BPC is a joint venture between Russia’s OAO Uralkali (MCX: URKA), the world’s No. 1 producer, and Belaruskali of Belarus.

However, this arrangement was thrown into doubt on Tuesday after Uralkali announced that it would no longer sell its potash through BPC and would instead handle exports through its own subsidiary, Uralkali Trading.

Uralkali also said its move would likely bring about a 25% drop in potash prices, to $300 per metric ton, by year-end. That’s because the company plans to step up production to full capacity as it races to grab market share in key emerging markets, particularly China. Uralkali currently gets about half of its revenue from sales to Asia.

If Uralkali follows through, its output would rise to 13 million metric tons in 2014 from 10.5 million this year, according to Bloomberg. To put that in context, Uralkali recently said that global potash demand would hit 53 million to 54 million metric tons this year, up from 51 million in 2012.

The company’s bid to increase its market share would also be helped by its low production costs, which run about $60 per metric ton, compared to $100 per ton for North American producers and $240 a ton in Europe.

The disagreement comes after the Belarusian government canceled BPC’s exclusive right to export the country’s potash in late 2012. Belaruskali later made deliveries outside of BPC. “We have repeatedly informed our Belarusian partners that such actions were unacceptable, and they have ultimately destroyed the fundamentals of our prolonged fruitful co-operation,” said Uralkali CEO Vladislav Baumgertner.

Investors responded to the prospect of a flooded potash market by selling off fertilizer stocks: Potash Corp. is now down over 23% since the announcement, Mosaic has fallen 23%, and Agrium is off by 7%.

“It’s as if Saudi Arabia decided to leave OPEC—prices would fall immediately,” Renaissance Capital equity sales trader Dmitry Ryzhkov told Reuters.

How the Potash Market Works

Potash is a $20-billion market. Only 12 countries produce it, with Canada—mainly the province of Saskatchewan—accounting for 40% of worldwide output. Potash Corp., North America’s leading producer, controls most of that country’s supply.

The situation could have a significant impact on Canada’s economy, as Investing Daily’s Ari Charney reported yesterday:

“If sales volumes drop in the near term as buyers await greater clarity on pricing, then that could weigh on third-quarter GDP, which the Bank of Canada had previously forecast would grow at a strong 3.8% annualized rate,” he wrote. “CIBC says that a drop in sales volume of 25% would shave four-tenths of a percentage point from third-quarter GDP.”

The two cartels negotiate fixed-term contracts with major suppliers on behalf of their members. The last contract BPC signed, for sales in China, was worth $400 per metric ton. The cartels’ dominance has helped keep prices stable by making it easier for producers to adjust their production to meet demand.

Even so, the market remains in oversupply, with production capacity set to rise 38%, to 96.5 million metric tons, by 2017, while demand will increase 26%, to 66 million tons.

“The overall market is likely to remain in surplus for the next few years,” CIBC World Markets said in a recent research report quoted by the Canadian Broadcasting Corporation. “That implies that the outlook for prices will hinge to some degree on producers’ ability to maintain overall production discipline.”

With that discipline now in question, prices appear certain to fall—but analysts disagree on how much, and the degree to which the market has truly opened up.

“Uralkali’s announcement completely turns the global potash market upside down,” analyst Elena Sakhnova of VTB Capital in Moscow told Bloomberg. “If previously global potash producers were acting like an oligopoly, working with the rule that benefited higher potash prices over shipped volumes, now the market will be fully competitive.”

Scotiabank economist Patricia Mohr put forward a more cautious view. “The potash market is quite concentrated, though, so even if they do sell outside the marketing arrangement that they’ve been a part of in the past, it remains really quite a concentrated market,” she told the Canadian Press. “The market has been waiting for a second half contract agreement with China and that price had been expected to roll over at about $450 per metric ton delivered into China, so we’ll just have to see what happens now.

New Mines D.O.A.

Uralkali’s move likely means that fewer mines that are currently in the planning and development stages will make it to production. That could include a massive project by BHP Billiton (NYSE: BHP), the world’s largest diversified mining company, which would directly compete with Canpotex in Canada.

As we reported on July 9, BHP’s Jansen mine in Saskatchewan would be the world’s biggest potash project, with 8 million metric tons a year of production and reserves of around 3 billion metric tons. However, costs are high, with some estimates saying construction and development would come in around $15 billion. BHP is currently reviewing Jansen.

“Uralkali appears to have started a price war,” Citigroup analyst Heath Jansen wrote in a note quoted by Bloomberg. “We would argue that the risk-reward of proceeding with the project is moving toward not proceeding.”

Mark Gulley, an analyst with BGC Financial LP, was more blunt: “I think Jansen was probably dead before this and now it is certainly dead,” he told Reuters.

Look Beyond Potash

At Forbes, writer John Dobosz warns investors against painting all fertilizer stocks with the same brush. He notes that some companies produce nitrogen, one of the other two main crop nutrients, in addition to potash.

Agrium, which has posted a comparably smaller share-price decline than other potash producers, provides an example of a diversified fertilizer stock.

The company, which is North America’s third-largest potash producer, operates through three divisions: Wholesale, which produces and markets nitrogen, phosphate and potash worldwide; Retail, which operates 1,220 farm-supply stores in North America, South America and Australia; and Advanced Technologies, which sells specialty fertilizers.