CALGARY -- Fertilizer companies Potash Corp. of Saskatchewan and Calgary-based Agrium are in preliminary merger talks to create a Canadian agricultural giant.

Both companies issued statements today confirming the potential union after their shares were halted on the Toronto Stock Exchange.

They said no agreement has been reached and there is no assurance that any transaction will result from these discussions.

"It would create a blockbuster agriculture company in Canada, and kind of a global blockbuster company as well," said John Stephenson, president of Stephenson & Co. Capital Management.

He said the merged company would have more negotiating clout and supply discipline, something that is currently lacking in the industry.

News of the merger talks pushed Potash Corp.'s stock up $2.57 or 12.3 per cent to $23.46 in mid-day trading, while Agrium's stock was up $7.47 or 6.4 per cent to $124.

The rise in share prices made Potash Corp., the world's largest fertilizer company by capacity, worth $19.7 billion and Agrium worth $17.2 billion -- creating the potential for an agricultural giant worth close to $37 billion.

The merger talks come as the fertilizer industry struggles with a steep drop in prices in recent years following a ramp-up of production and the breakup of a Russia-Belarus potash trading cartel in 2013.

Sam La Bell, head of research at Veritas Investment Research Corp., said the market conditions are a likely motivation for the merger talks.

"This is a merger more to recognize the industry conditions rather than something that they both would have considered when potash prices were a lot higher. I'm not sure this would have gone ahead a couple of years ago," said La Bell.

Potash Corp. reported an averaged realized price in the second quarter of US$154 per tonne, compared with a brief peak of around US$900 a tonne in 2008 and still over US$400 just a few years ago.

"Mergers nowadays are done for cost reasons, so clearly this is an industry that's facing very low pricing and they're trying to cut costs as much as possible everywhere that they operate," said La Bell.

Potash companies have already made moves this year to cut costs and production, with Potash Corp. shutting its recently opened Picadilly mine in New Brunswick in January and temporarily closing some Saskatchewan mines, while U.S.-based Mosaic Co. has closed its potash mine near Colonsay, Sask., until market conditions improve.

Saskatchewan Premier Brad Wall said the chief executives of both companies had called him and assured him that the province's interests in terms of jobs, taxes and economic impact were part of negotiations.

"Both of them indicated to me, and it was good to hear this, that the interests of Saskatchewan have been at the forefront of even these preliminary discussions," said Wall.

La Ball said Potash Corp. and Agrium already work closely as members of Canpotex, which markets and exports Canadian potash production abroad. He said Agrium's retail wing, which gives them direct exposure to farmers, could also give Potash Corp. a boost.

"Agrium does operate in different segments that they have greater exposure to, outside of potash production. That brings a level of diversity to potash that might be beneficial," said La Ball.

The industry has looked for consolidation in the past, with Potash Corp. pushing for a US$8.7-billion takeover of K+S Group last year that was rebuffed by the German fertilizer group.

Potash Corp. itself was the target of a US$38.6-billion takeover bid by BHP Billiton in 2010, but the Canadian government ultimately blocked the offer as not having enough net benefit for Canada.

Stephenson said he expects the potential merger between Potash Corp. and Agrium would likely face less resistance since both companies are based in Canada.

"It's a made in Canada solution," said Stephenson.

The Saskatchewan government formed PotashCorp in 1975 as a Crown corporation. The company was privatized in 1989.

Agrium, a major producer of agricultural products including potash, was founded in 1931.

With files from Jennifer Graham in Regina