uploads/2015/08/Average-Potash-Prices-Vs-Revenue-2015-08-101.jpg

PotashCorp May See Lower Potash Prices Ahead

By

Updated

Potash prices remain firm

The profitability of Potash Corporation, also known as PotashCorp, depends to a great extent on industry fundamentals such as fertilizer prices, global supply and demand, and crop prices, et cetera.

The average price of offshore shipments increased to $247 per metric ton from $229 metric ton a year ago. Pricing plays a critical role in profit growth, as favorable pricing can sometimes offset low volumes. We’ll see this at work when we discuss the phosphate segment later in this series.

Higher prices benefit other potash producers such as Agrium (AGU), Mosaic (MOS), and Israel Chemicals (ICL).

Currently AGU, POT, and MOS form 13% of the VanEck Vectors Agribusiness ETF (MOO). MOO also invests 3.6% of its portfolio in CF Industries (CF).

Article continues below advertisement

Potash prices have faced pressures in the North American region in particular. This is a result of increased imports, which has led to oversupply and made prices more competitive in the region. PotashCorp management is confident that the firm will remain competitive because of its established distribution network that’s closer to customers. According to the company, imports add to the cost of transportation.

Outlook

During the quarterly earnings call, management said it got a “good response” because its “customers perceive that there is good value in potash right now.” This may mean that farmers have purchased potash in anticipation of a potash price increase. Higher potash prices will ultimately be beneficial for the company.

The graph in this post originally appeared with incorrect axis labels. We have since updated the graph. We regret this error.

Advertisement

More From Market Realist