uploads///Crop and Fertilizer Price Index

Why Potash Corporation May Report a Dull 3Q15



Fertilizer prices

Fertilizer prices are key drivers of revenue for companies such as Potash Corporation (POT), Mosaic (MOS), Intrepid Potash (IPI), and CF Industries (CF). Currently, Potash Corporation forms about 4% of the VanEck Vectors Agribusiness ETF (MOO), which is also impacted by movements in fertilizer prices.

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Fertilizer price movement

  • Fertilizer prices are driven by several factors, but if you look at the chart above, fertilizer prices have tended to move with crop prices.
  • When crop prices are high, farmers are motivated to increase their output to get higher prices for their crops and thus make higher profits.
  • Overall prices for corn, wheat, and soybean have fallen throughout 2015 except for a small rise in the month of July.
  • The small rise in July was a result of the USDA lowering its outlook on short-term grain supplies.
  • Global crop prices have fallen in 2015 as a result of strong production in the past two seasons.

Dim outlook on selling prices

  • Because of weak crop prices, the demand for fertilizers has also taken a hit in 2015.
  • Recently, Potash Corporation’s peer Mosaic (MOS) released its outlook on potash and phosphate, or DAP, prices.
  • Average DAP prices are expected to be in the upper half of the $435–$455-per-ton range.
  • Average selling prices were also guided to the bottom half of the $260–$280-per-ton range.
  • Because fertilizer is a commodity, Mosaic’s dim outlook on fertilizer prices reflects industry conditions, which would impact most of the sector’s players including Potash Corporation (POT), Intrepid Potash (IPI), and CF Industries (CF), as well as the VanEck Vectors Agribusiness ETF (MOO).
  • These factors set the stage for a dull 3Q15 result for Potash Corporation.

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