Fertilizer stocks: Essential midweek trends

Part 3

Potash sales price will hit $300 per tonne, negative for revenues

The significance of potash price

Wholesale potash price is one of two factors (the other being sales volume) that influence potash producers’ revenues. When prices rise, so does revenue, which will translate to higher profitability (margins), earnings, and share prices. However, when prices fall, they will have a negative impact on fundamentals and share prices.

Wholesale Potash Price 2013-10-01Enlarge Graph

Midwest potash price falls to $441 per mt (metric tonne)

According to Green Markets, wholesale potash prices in the Midwest region of the United States stood at $441 per mt on Monday, September 30, 2013. This was a decline from our last reported $463 per mt (or $420 per short tons) on July 29, which we said was going to be a key level to look at.

Summary of historical potash price trends 

Prices have fallen since mid-2011, as global food inflation fell due to a successful plantation year and slower economic growth and made potash more expensive for farmers. Policy bias towards nitrogenous fertilizers in India and weaker Indian currency, which made potash more expensive, was also a contributing factor to lower potash demand. The breakup of a partnership between Uralkali and Belaruskali that was announced in late July, as well as lower crop prices, contributed to lower wholesale prices.

Midwest potash price above companies’ sales price

The Midwest potash price quoted by Green Markets has historically tread above companies’ selling price because Green Markets’ prices include transportation cost to bring potash from Canada to the United States. The Vancouver spot price, quoted by the World Bank, on the other hand, excludes these costs. Yet its data is only published monthly and lags a little. (See the graph in the next part of this series.)

Potash companies to see $300 per mt sales soon

If we take the average difference in selling price of ~$140 per mt over the past four quarters between the Midwest price and Mosaic Co. (MOS), Potash Corp. (POT)’s and Agrium Inc. (AGU)’s historical selling prices, these fertilizer companies will likely see $300 per mt of sales price in the coming months. Revenues for POT, MOS, AGU, and Intrepid Potash Inc. (IPI)’s revenues will be negatively affected depending on how long potash prices stay at current levels. The share prices of these companies, as well as the Market Vectors Agribusiness ETF (MOO), could also be negatively affected if it isn’t fully priced in.

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