Calgary-based fertilizer giant Agrium Inc. suffered a setback in its $5.5 billion US bid for rival CF Industries Holdings Inc. on Wednesday.

CF, based in Deerfield, Ill., won important support for a $4.7 billion takeover of its own that, if successful, would create a company bigger than Agrium is prepared to pursue.

Agrium has vowed not to overpay for CF Industries. (CBC)

CF's directors have rebuffed Agrium's offer for more than a year, while they pursued a third fertilizer company, Iowa-based Terra Industries Inc.

That three-way stalemate appeared over in January when CF dropped its bid and Terra accepted a $4.1 billion offer from Norway's Yara International in February.

However, CF came back last week with a higher offer for Terra, whose directors on Wednesday declared that its bid was superior to Yara's.

Both Agrium and CF want a bigger share of the market at a time when fertilizer companies are cheap because their share prices have suffered with the downturn.

At the same time, global demand is expected to grow as developing countries become more prosperous and people consume more meat.

Agrium has vowed not to overpay for CF but must now decide whether to increase its bid.

"I think their choice is simple," said Edlain Rodriguez, an analyst with Broadpoint AmTech in New York. "They have to make a huge bid for CF in order to make CF's board think twice before getting into the Terra deal."

Agrium closed up 55 cents to $70.05 in Toronto, while Terra shares added $1.12 cents to $46.95 US on the New York Stock Exchange, where CF shares finished up $2.92 at $103.55 US.

With files from The Canadian Press