Bottom line and share price
The performance of any investment over the medium to long terms depends on current or expected future changes in the bottom line, like earnings per share, free cash flow per share, EBITDA (earnings before interest, tax, depreciation, and amortization) per share, and dividend per share.
When the bottom line is rising or expected to rise, the market will bid prices up. Conversely, when it’s expected to deteriorate or is declining, share prices tend to fall. These bottom lines are affected by revenue and expenses.
We can break revenue down into price and quantity. The supply and demand dynamics determine the price of potash that producers like Potash Corp. (POT), Agrium Inc. (AGU), Intrepid Potash Inc. (IPI), and Mosaic Co. (MOS) can sell to wholesalers, distributors, retailers, cooperatives, or end users like crop farmers.
Factors like excess capacity, capacity expansion plans, operating rate, rivalry (competition among firms), marginal cost of production, proximity to customers, and inventory balance are factors that affect prices.
On the other hand, quantity is driven by indicators like fertilizer prices, crop prices (which are affected by weather), currency rates, application cycles, inflation rates in key countries like India and China, dietary patterns, crop yields, nutrient application balance, weather, plantation, and biofuel production or demand.
Expenses generally depend on changes in mining costs and fluctuations in raw material prices, which vary by location and mine. While phosphate and nitrogenous fertilizers’ costs are more sensitive to supply and demand for the raw material, they’re less applicable to the potash industry.
It’s a start
The factors we outlined above aren’t comprehensive or as detailed as they can be, but this is a good start. We’re still reorganizing our drivers to help retail investors make more informed investment decisions. In the next few articles of this series, we’ll go over some ongoing key drivers that impact potash companies’ outlook. These also apply to the VanEck Vectors Agribusiness ETF (MOO).