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Saskatoon-based Potash Corporation of Saskatchewan Inc., or PotashCorp, which calls itself the world's largest fertilizer company, led the list of losers. It fell $35.50, or 26 per cent, to $101.
Calgary-based Agrium Inc. was down $13.47, or 23 per cent, at $45.01.
Although both companies reported record second-quarter profits this summer, traders dumped the stocks after a Merrill Lynch analyst cut his rating on the sector from "buy" to "underperform," citing weakening product prices and concern about future earnings.
This amounted to a sell recommendation. Under a rating system adopted in the spring, Merrill rates stocks "buy," "neutral" or "underperform."
PotashCorp said the ensuing sell-off was undeserved.
"In the tough financial market conditions that we're seeing right now, good companies, good businesses can certainly get caught up in overreaction," the company's public relations manager, Rhonda Speiss, told CBC News.
"We believe that's what's happening here."
Toronto's S&P/TSX composite index dropped through the 11,000 level to close at 10,900.54, its lowest level in more than two years.
The loss was 813.97 points, or nearly seven per cent — not far from Monday's record one-day point drop of 840.93 but well short of the record percentage drop, 11.32 per cent, set on Black Monday, Oct. 19, 1987.
New York's Dow Jones industrial average finished at 10,482.85, down 348.22 points or 3.2 per cent.
General Electric Co., which lined up a cash transfusion from billionaire investor Warren Buffet on Thursday, was still losing ground on the market.
GE's stock was down $2.35 US, or 9.6 per cent, at $22.15 US, flirting with a 52-week low.
The price of a barrel of oil was headed lower, too. Light sweet crude for November delivery was down $4.64 US to $93.89 US a barrel in New York trading.
Agrium official expresses shock at rating cut
In Toronto, all major stock groups were down, with the materials group — including PotashCorp and Agrium — leading the way.
The fertilizer stocks took their lumps after Don Carson, Merrill's chemicals and commodities analyst, sent a note to clients Thursday morning.
He said fertilizer prices are no longer going through the roof, partly because farmers are getting lower prices for corn crops they grow with it. This is unsettling news for the industry, he said.
"With phosphate prices falling, nitrogen prices peaking and potash prices rising less than expected, there is considerable uncertainty surrounding the near-term earnings outlook," he said.
Richard Downey, Agrium's senior director of investor relations, said corn prices are down from a spring peak of $8 US a bushel but still more than double the average of the past five year, and fertilizer prices remain far higher than a year ago.
"Our business fundamentals are pretty much as strong as they've ever been," he told CBC News, "and there is overreaction going on for the whole fertilizer space"
He expressed shock at the rating cut.
"I mean, a Merrill downgrade from a 'buy' to a 'sell' is pretty dramatic," he said. "I've actually never seen them jump two levels on really very little news."
PotashCorp was unhappy with share price 60% higher
The Saskatoon company has potash mines at six places in Saskatchewan — some now shut down by a strike — and at Sussex, N.B., where it is expanding an operation that already employs 339 people.
When the strike began in August, it was feared that potash fertilizer prices would skyrocket, but there is no sign of that yet.
The company's stock has traded between $246 and $94 in the past 52 weeks.
"We believe our shares are significantly undervalued versus our long-term potential," he said in a statement at the time. "By buying back low-priced shares, we will strengthen our company for the future and reward our long term shareholders."
Speiss, the public relations manager, said Thursday the firm has "a long-term view of our business, and we believe that, despite today's market reaction, the fertilizer industry is very well positioned to go forward."
Agrium, which has operations from Alberta to Argentina, announced its own buyback program only this week.
"We believe the current price of our shares does not reflect Agrium’s achievements nor our strong future prospects," CEO Mike Wilson said in a statement issued Wednesday, when the stock was trading for as much as $60.