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CF Industries Plants Seeds of Doubt in 2016

PART:
1 2 3 4 5 6 7 8 9 10 11
Part 5
CF Industries Plants Seeds of Doubt in 2016 PART 5 OF 11

CF Industries: Challenged by Selling Prices

Selling prices by segment

In the previous part of this series, we saw that average selling prices for fertilizers (MXI) have a significant impact on CF Industries’ (CF) sales. In the commodities business, which includes CF Industries, PotashCorp (POT), Agrium (AGU), and Intrepid Potash (IPI), companies do not set fertilizer prices—they are the price takers.

CF Industries: Challenged by Selling Prices

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Prices decline

As shown in the chart above, fertilizer prices have fallen across all the segments. Over the past five years,1 granular urea prices have fallen the most, by as much as 37%.

Prices for UAN (urea ammonium nitrate), which had the highest contribution towards CF Industries’ sales, have fallen by as much as 32% over the past five years. Similarly, average ammonia prices have fallen by 30%.

Painful to investors

Nitrogen is the most important nutrient used in agriculture. Unlike potash and phosphates, it is applied every year. Although nitrogen prices should increase due to the demand for nitrogen fertilizers, this has not been the case.

The downshift of prices has been painful to investors. As fertilizers increase agricultural yield and fulfill the demand of the growing population, many have invested in fertilizer companies with the assumption that they will continue to grow. In the next part of this series, we’ll see why nitrogen prices have fallen over the years.

  1. the TTM (trailing-12-month) 2Q16 period versus TTM 2Q12
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