Shipments are the second key driver that impacts revenue for fertilizer companies such as Potash Corporation (POT), Mosaic (MOS), Intrepid Potash (IPI), and CF Industries (CF). Over the past three months, the fertilizer industry has weakened, with several factors going against fertilizer companies. Here are some of the factors that may have affected Potash Corporation’s 3Q15 shipments. The VanEck Vectors Agribusiness ETF (MOO) maintains about 4% of its holdings in Potash Corporation.
Brazil and India
- Besides the weakness in the Brazilian real, farmers put off their fertilizer purchases as a result of a tight credit environment, according to Potash Corporation.
- In its 2015 monsoon end season report, the India Meteorological Department stated that overall India received 86% of its normal rainfall—that is, 14% less rainfall between June and September than its long-term average.
- Most currencies have weakened against the US dollar in 2015, making it expensive for customers to purchase fertilizers.
- Over the past three months, the Brazilian real has fallen 14%, the Chinese yuan has fallen 2.2%, and the Indian rupee has fallen 1.2% against the US dollar.
- These countries are the largest users of potash fertilizers outside the United States.
- According to Potash Corporation, there is a low correlation between fertilizer demand and currency changes, so the impact from the above scenario is limited.
- This limited impact is due to the fact that farmers need to replenish nutrients after each harvest season.
VAT in China
- China accounts for about 20% of global potash fertilizer consumption, making it the largest consumer of potash.
- China recently introduced a 13% value-added tax (VAT) on fertilizer sales.
Despite the above headwinds, analysts are estimating potash shipments for Potash Corporation to be about 2.5 million metric tons.
Speaking of analysts’ estimates, we’ll see how the weakness in fertilizer prices and shipments impacted Potash Corporation’s EV/EBITDA multiple (enterprise value to earnings before interest, tax, depreciation, and amortization).