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Retail fertilizer prices reflect the supply and demand dynamics between the fertilizer manufacturer and the crop industry. When prices are falling, the drop can be because of lower demand or increased supply. Conversely, when prices are rising, the increase may indicate stronger demand or lower supply. Movements in retail fertilizer prices can give us a clue to what sales and fertilizer prices may be at the wholesale level, which is relevant to manufacturers like Agrium Inc. (AGU), CF Industries Holdings Inc. (CF), Potash Corp. (POT), and Mosaic Co. (MOS).
On November 1, phosphate and potash fertilizers traded at $587 and $524 per metric tonne. Retail phosphate prices were down from $589, while potash was also lower compared to $533 on October 25. The two fertilizers saw large declines in September, as crop prices fell and wholesale prices for the two fertilizers fell in mid-summer due to the breakup of a partnership between Belaruskali and Uralkali—two of the top-five potash producers—as well as increased supply of phosphate due to new capacity additions.
As competition rose, countries like China and India have taken the opportunity to negotiate or renegotiate potash contracts at lower prices. While the impact on retail prices wasn’t immediate, as people were in wait-and-see mode, farmers’ caution eventually led to a collapse in US potash retail price in September.
Despite recent trends, most producers don’t expect wholesale fertilizer prices to fall much farther over the medium to long term. If prices do fall, producers believe China and India will increase purchases and support prices. Ongoing production cuts should also support prices. As retail fertilizer prices often follow wholesale prices, this would be positive for Agrium Inc. (AGU)—a major player in the retail business.
A halt in wholesale prices would also be positive for potash and phosphate producers like Agrium Inc. (AGU), Intrepid Potash Inc. (IPI), Mosaic Co. (MOS), and Potash Corp. (POT). The Market Vectors Agribusiness ETF (MOO) should also benefit. But until fertilizer buyers get a clearer picture of the industry’s future outlook, they’re unlikely to buy large. As they wait on the sidelines, price appreciation is likely limited in the short term.
Note: there has been a correction in this article. Previously, we said November 1 price for potash was higher than October 25′s. As one of our readers pointed out, this is not true and it has been corrected. The data reported, however, was accurate.
© 2013 Market Realist, Inc.