What 2017 Could Hold for Potash Producers

Potash stocks struggled for most of 2016. In 1H16, potash demand was negatively affected due to delays in potash contract settlements in China and India. In these countries, customers waited for prices to bottom out while drawing down their existing inventories. This eventually weakened the demand for potash and put downward pressure on prices.

On the supply side, excess capacity led to increased competition and negatively impacted fertilizer prices.

As we can see in the above chart, potash prices bottomed out in the middle of 2016. As the fall application season approached, the situation began to improve in 2H16, with shipments picking up. In 2016, global potash shipments reached 59.6 million metric tons, slightly less than 60.4 million tons in 2015, according to PotashCorp (POT).

Investors in potash stocks such as PotashCorp, The Mosaic Company (MOS), Intrepid Potash (IPI), and Agrium (AGU) have seen lackluster earnings growth over the past few quarters and have held onto their investments in anticipation of a better agribusiness (MOO) (SPX-INDEX) environment in 2017.

Most Wall Street analysts have “hold” recommendations on agribusiness stocks as of February 2017, but some have recently upgraded their target prices. You can read February Update for Agribusiness Stocks: Recommendations, Targets to learn more.