In this series, we’ve already looked at the prices of phosphate fertilizers such as DAP (diammonium phosphate) and MAP (monoammonium phosphate). Phosphate fertilizer prices are a function of supply and demand as indicated by inventory levels. An increase in inventory levels indicates that supply is outpacing fertilizer demand. Keep in mind that manufacturers may adjust production in anticipation of weaker demand, but there’s a lag. If inventory reaches a certain point, it usually retracts due to cyclical demand.
Phosphate inventory still above median
In the above graph, you can see that the phosphate inventory on March 18, 2016, was 773,000 short tons (701,252 metric tons). That’s higher than the previous year’s level of 727,000 short tons (659,523 metric tons) in March 2015.
US phosphate inventory volumes in March 2016 have continued to stay higher by ~6% year-over-year. Over the past few years, many producers have added capacity, which has contributed to the increase in inventory. On the demand side, the currencies of key markets such as India and Brazil have depreciated. While currency headwinds remain a challenge, there’s still a tight credit situation in Brazil.
These trends are negative and can impact fertilizer producers such as Agrium (AGU), Mosaic (MOS), PotashCorp (POT), Israel Chemicals (ICL), Yara International, Uralkali, and Belaruskali. For diversified exposure to fertilizer stocks, you could consider investing in the SPDR S&P North American Natural Resources ETF (NANR), which invests ~12% of its portfolio in agricultural chemical stocks.
In the next part of this series, we’ll look at the input costs of phosphate rock, the key raw material for phosphate fertilizers.