There are several companies and ETFs that generate a significant portion of their earnings from nitrogen fertilizers. These include CF Industries Inc. (CF). Potash Corp. (POT), Terra Nitrogen Company LP (TNH), CVR Partners LP (UAN), and Agrium Inc. (AGU). Some of these are also part of the Market Vectors Agribusiness ETF (MOO).
CF Industries Inc. (CF), CVR Partners LP (UAN), and Terra Nitrogen Company LP (TNH) are pure-play nitrogen fertilizer producers, but Agrium Inc. (AGU) and Potash Corp. (POT) also engage in the potash, phosphate, or retail businesses.
Note that CF Industries recently sold its phosphate business to Mosaic Co. Plus, while Agrium’s exposure to nitrogen fertilizers is just about 21% on a gross profit basis, its nitrogen segment makes up 34% of total EBITDA (earnings before interest, tax, depreciation, and amortization). As a retail player, Agrium pays a higher marketing and sales expense as a percent of revenue. So the actual profit that the company makes for its retail segment, after subtracting marketing and sales expenses, makes up a smaller portion of the company’s total cash flow.
These companies have in the past moved closely to each other—except for Potash Corp., whose earnings can be largely influenced by potash and phosphate. The past two and a half years of performance show that most companies were driven by industry-wide fundamentals. But in 2013, that relationship collapsed. CF Industries Holdings ended the year positive, supported by share buybacks (more on this in next week’s series), while Terra Nitrogen and CVR Partners fell because of lower nitrogen fertilizer prices.