Mosaic sees a soft market but expects improvement after 3Q 2013

Part 3
Mosaic sees a soft market but expects improvement after 3Q 2013 (Part 3 of 5)

Why Mosaic doesn’t see short-term fertilizer price appreciation

Price appreciation unlikely

Mosaic Co. (MOS) doesn’t see price appreciation in its fertilizers over the short term, despite improving domestic demand as the harvest period winds down and farmers purchase nutrients for the fall. Overall, this is because crop economics have deteriorated since the start of the year and farmers aren’t likely to purchase as much.

Corn Plantation and Nutrient ConsumedEnlarge Graph

Planted acreage lower

Prices for grains and oilseeds like corn, wheat, and soybeans have fallen quite a bit this year due to favorable global weather, high acreage of plantation, and increased use of fertilizers, driven by high crop prices. But as crop prices have fallen, the estimated acreage that farmers will plant next year is expected to fall to 92 million acres, according to CF Industries, down from 95.3 million planted this year and from 97.2 million planted in 2012.

Nutrient purchases are lower

In the past, nutrient applications have trended closely with the acreage used to plant grains and oilseeds. Since 1964, the nutrient application of nitrogen has strongly correlated with the acreage of corn planted in the United States, at 0.81. The correlation between phosphate and potash application to the acreage of corn planted in the United States is lower, at 0.45 and 0.47, but positive enough.

The weaker correlation between phosphate and potash reflects the lack of need for farmers to apply them each year, making farmers more sensitive to the relative prices of phosphate and potash to crops. So while fertilizers may still be very affordable, they aren’t as affordable as they were in the beginning of the year. As farmers decide to plant less corn next year, which is perhaps the largest use of fertilizer on a per-acre basis, farmers’ demand won’t be as strong.

Exports are key to future outlook

This means that much of the higher demand from North America would have to be driven by where crop prices are towards the end of next year. In the meantime, fertilizer prices will quite depend on China and India’s purchases. Management believes that either late this calendar year or early next year, they’ll do business on potash.

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