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Interpreting the Corn Yield for Fertilizer Companies

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Corn yields

We’ve already seen that the global stock-to-use ratio for corn has inched up, meaning that corn inventory has gone up in the recent months, and so now we must consider corn yields, or more specifically, yield of corn per hectare planted globally.

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Corn yields are still high

With advancements in technology and increased use of agricultural fertilizers and chemicals, corn yields have gone up over the years. As of February 26, the global corn yield stood at about 5.5 metric tons per hectare, which was slightly shy of about 5.7 metric tons per hectare one year ago, on February 26, 2015.

Why else has yield increased?

Over the five-year period in the graph above, the average global corn yield stood at 5.3 metric tons per hectare. The bumper agricultural environment prior 2014 led many farmers to increase their planted hectares or to utilize more crop nutrients and agricultural chemicals (such as herbicides) to increase their yields and take advantage of the higher crop prices in order to increase profitability.

This also buoyed fertilizer companies as demand for NPK fertilizers went up. Companies such as Potash Corporation (POT), CF Industries (CF), Mosaic (MOS), and Agrium (AGU) all benefitted, and som of these companies can be accessed through the Materials Select Sector SPDR ETF (XLB), which invests 12% of its portfolio in agricultural chemicals.

However, the increase in planted hectares also led to excess supply and started putting downward pressure on prices for corn. In the next part of this series, we’ll look at how corn prices have fared over the five-year duration.

In the next part, we’ll assess the outlook for corn prices going forward.

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