Reading the Fertilizer Affordability Index after July 14
Last week (July 14), fertilizer affordability stayed at the levels we saw two weeks ago. Fertilizer has remained affordable for most of 2017, which represents a positive outlook for farmers.
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The Fertilizer Affordability Index, which is issued by Mosaic (MOS), rose last week from this year’s low point of 0.52x to 0.55x. The index is used to determine the affordability of fertilizers compared with key fertilizer-consuming crops. Indexed to 2005, a Fertilizer Affordability Index reading below 1.0x means that fertilizers are more affordable than in the base year, while any level above 1.0x would mean that the fertilizers are less affordable relative to the base year.
Current levels show that fertilizers remain highly affordable, which could explain the firm demand for fertilizers. Producers (MOO) such as PotashCorp (POT), CVR Partners (UAN), Mosaic (MOS), and CF Industries (CF) could benefit from stable demand, but high affordability means lower price realization. This can lead to margin compression for some of the producers we’ve discussed so far in this series and affect valuations and stock prices.
We’ll publish pre-earnings and post-earnings series on key fertilizer players as they come in later this month. In the meantime, be sure to visit Market Realist’s Agricultural Fertilizers page for crucial research.