(Adds interview with ratings agency, details on downgrade, share activity)
By Rod Nickel
WINNIPEG, Manitoba, Nov 4 (Reuters) - Moody's Investor Service on Friday downgraded the credit rating of Potash Corp of Saskatchewan POT.TO POT.N , citing concerns of a longer-than-expected fertilizer slump, ahead of the company's planned merger with rival Agrium Inc AGU.TO .
Moody's downgraded Potash's rating to Baa1 from A3, saying its credit metrics are likely to weaken as a result of lower fertilizer prices and the potential for increased market volatility as new fertilizer capacity comes onstream within two years.
"Although management has taken significant steps to retain the A3 rating, market conditions will make it extremely difficult for the company to generate credit metrics that would support the A3 rating over the next two years," John Rogers, Moody's senior vice president, said in a statement.
Potash is under review for a possible further downgrade in light of its pending merger with Agrium, while that company, which has a lower rating, is under review for upgrade, Rogers said in an interview.
The review is due to the fact that it is unclear what the combined company's financial priorities for cash will be for the coming years, he said.
Potash shares dipped 0.6 percent in New York and have fallen nearly 3 percent in the past week.
Crop nutrient producers have been struggling with falling prices and profits, as supplies are ample and farm incomes are strained by lower crop values.
Potash Corp declined to comment. In late October, Potash Chief Executive Jochen Tilk said potash prices improved in the third quarter and demand may rebound next year.
On Thursday, Potash and Agrium shareholders voted in favor of a merger, which still requires regulatory approval. Potash last month lowered its profit outlook for the year and posted its second smallest quarterly profit per share in nearly 12 years, according to Thomson Reuters data.