* Average potash prices seen lower in 2014
* 2014 might prove even more challenging than 2013 -CEO
* Sticks to new Legacy mine in Canada on long-term growth
* Shares drop 5.8 percent, while blue chips rise 0.3 pct (Adds analyst comment, shares, details on salt business)
By Ludwig Burger
FRANKFURT, March 13 German potash miner K+S expects operating earnings to fall for a third straight year due to lower prices of the fertiliser ingredient following the break-up of an export alliance between two larger rivals.
K+S, which is also the world's largest salt supplier, on Thursday said 2014 adjusted earnings before interest and tax would be significantly below last year's level, which analysts said should be interpreted as a drop of more than 15 percent.
The market for potash has been in turmoil since Russian producer Uralkali quit a powerful sales alliance with Belarus' Belaruskali in July last year, leading to higher output volumes and lower prices.
K+S shares were down 5.8 percent to 23.09 euros by 1028 GMT, while Germany's blue-chip index DAX was up 0.3 percent.
The group on Wednesday posted an 18 percent drop in 2013 adjusted operating profit to 656 million euros, slashed its dividend and suspended its long-term payout goal to preserve cash for a mine it is building in Canada.
Analysts were already expecting K+S's adjusted operating earnings to fall to 430 million euros this year, according to a Reuters poll.
While the group's potash output volumes are seen flat at just below 7 million tonnes, average prices over the course of the year should continue to drop, the group said.
Volumes at the salt business, which accounted for 18 percent of operating profit last year, would also be flat in 2014 with lower prices seen in some markets, it added.
"If 2013 was a challenging year, then 2014 might well be even more challenging," Chief Executive Norbert Steiner said in a video message posted on the company's website.
Bank of America Merrill Lynch analysts said the salt unit's earnings prospects for this year were disappointing and warned that the share price implied "very optimistic" assumptions about the future potash price.
The average per-tonne price of potash products dropped 10.8 percent to 294 euros ($410) last year, the annual report showed.
K+S has remained committed to a C$4.1 billion ($3.7 billion) expansion project in Canada known as Legacy, conceived in anticipation of long-term growth, even though lower prices have upset previous funding plans.
"The global potash market is growing and thanks to Legacy, K+S will be part of this growth," said Steiner.
($1 = 0.7192 euros) (Reporting by Ludwig Burger; Editing by Jonathan Gould and Mark Potter)