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How Far Will Potash Fertilizer Prices Fall?

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Price expectation

Earlier in this series, we saw that PotashCorp (POT) reduced its dividends by 34% during its most recent 4Q15 quarter. The company’s outlook for potash selling prices is one of the key driving forces behind its dividend policy.

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Potash selling prices decline

During the 4Q15 quarter, the overall average selling price of potash fell to $238 per metric ton, lower than 4Q14’s price of $284 per metric ton. Potash prices were weaker in North America, falling to $271 per metric ton in 4Q15 from $358 per metric ton in 4Q14. Offshore average potash selling prices fell to $226 from $246 per metric ton over the same period.

The offshore market accounts for about 66% of PotashCorp’s potash segment’s sales and 4Q15 saw an 8% decline in the prices. The North American market saw a 24% decline in prices, making the company’s situation even weaker.

Price outlook

Weakness in potash prices cannot be ignored, and it will continue to weigh down companies such as PotashCorp, the Mosaic Company (MOS), Intrepid Potash (IPI), and Agrium (AGU) in 2016. The Mosaic Company, which released its 4Q15 earnings on February 11, forecasted its average selling prices in 1Q16 to be in the range of $200 to $230 per ton.

The VanEck Vectors Agribusiness (MOO) invests in some of the above companies. PotashCorp makes up 4.6% of the ETF. You can read a detailed analysis of Mosaic’s 4Q15 results in Mosaic’s 4Q15 Earnings: Nice Surprise, but What’s Next?

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