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Will 2016 Fertilizer Prices Sink Potash Corporation?

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Potash prices

Investors in Potash Corporation must closely track potash prices. In the management’s words, “The big driver in our business and the big driver in our equity value is potash price and the outlook in the market.” According to the quarterly World Bank’s Commodity Outlook, fertilizer prices in 2016 are expected to stabilize. While the price of standard grade KCl (potassium chloride or muriate of potash) as of January 18 was $295 per ton, the World Bank expects 2016 potash prices to be around $301 per ton.

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Phosphate prices

On the other hand, the average realized phosphate prices have increased over the past few quarters for Potash Corporation. Bear in mind that the phosphate prices in the above chart reflect a mix of feed and fertilizer prices. The average realized prices of feed is higher than for fertilizers. As of January 18, DAP (diammonium phosphate) prices stood at $390 per ton. In 2016, the World Bank is expecting DAP prices to slide down to $367 in real US dollar terms.

You can get exposure to Potash Corporation without investing directly in the company’s stock by investing in the VanEck Vectors Agribusiness ETF (MOO). MOO has approximately 5% of its total holdings in Potash Corporation (POT). Potash Corporation (POT), Mosaic (MOS), CF Industries Holdings (CF), and Agrium (AGU) form about 14% of the VanEck Vectors Agribusiness ETF (MOO).

Nitrogen prices

With the falling natural gas prices, an influx of nitrogenous fertilizers is expected to flood the market. Natural gas is the biggest input material necessary to produce nitrogenous fertilizers. This will likely put downward pressure on nitrogenous fertilizers such as urea and UAN (urea ammonium nitrate). The World Bank expects urea prices to decline to $265 per ton from $274 per ton.

With expectations for potash prices to improve, offset by a decline in phosphate and nitrogen fertilizer, Potash Corporation is gearing up for a continuously challenging environment in 2016.

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