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Should Investors in Potash Fertilizers Be Concerned?

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MOP Prices

Potassium chloride (or KCl), also known as MOP (Muriate of Potash), is the most widely used potash fertilizer around the globe. During the 2010–2011 planting season, MOP accounted for about 70% of all potash fertilizer consumption globally, according to the International Fertilizer Industry Association.

MOP prices have continued to decline since the high of $307 per metric ton a year ago in the June-July season. The price per metric ton of MOP as of the week ended March 4, 2016, stood at $282. This was down from $290 in the previous week. YoY (year-over-year), the prices of MOP declined by as much as 7% from $307 per metric ton.

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MOP prices have fallen over the year. Last week, they dipped below the 15-year median price of $290 per metric ton. Investors should be concerned about that. This is negative for companies such as PotashCorp (POT), Mosaic Company (MOS), and Agrium (AGU). This also impacts a broader portfolio such as the VanEck Vectors Agribusiness ETF (MOO), which invests about 30% of its portfolio in agricultural chemical companies.

Outlook

Most of the above companies have guided a further weakness in MOP prices in 2016. Intrepid Potash (IPI) recently said it will breach its covenants on further deterioration of potash prices. To learn more, you can read Did Intrepid Potash’s 4Q15 Earnings Beat Analysts’ Estimates?

The prices for potash fertilizers such as MOP have been driven up primarily by global players adding capacity over the years. This is expected to continue this year.

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