Chicago-based nitrogen fertilizer producer CF Industries is holding merger talks with Norway's Yara International ASA, the two companies confirmed.

The "preliminary discussions" concern a potential merger of equals to create a $27.5 billion global fertilizer producer that would rival Canadian fertilizer giant Potash Corp.

A merger with CF Industries would give Yara greater access to natural gas in the United States at a time when new drilling techniques are opening up more and more shale deposits, lowering prices. This is important because nitrogen fertilizer is made using ammonia, primarily from natural gas.

CF Industries, meanwhile, would benefit from access to Yara's global distribution system. The Norwegian company has a worldwide presence, with sales in 150 countries.

Yara has already taken steps to get closer to the U.S. market, announcing last October that it planned to build an ammonia plant in Texas with German chemical group BASF.

Fertilizer producers have been facing pressure recently as crop prices fall and competition from China intensifies. Looking ahead, the International Fertilizer Industry Association expects the rise in global production to outpace demand at least through 2018, Reuters reported.

Share prices of both firms rose on Tuesday after the talks were confirmed.

At the moment it's not certain that the discussions will lead to a tie-up. With the two companies holding a sizable combined market share in some countries, any deal might also face regulatory scrutiny.