What happens to crop prices also indirectly trickles down to fertilizer stocks. Recently, crop prices inched up from their multiyear lows. However, they have remained mostly below their past five-year prices, raising serious concerns over the recovery of the fertilizer sector.
Companies like Intrepid Potash (IPI) have declined about 50% YTD (year-to-date) because potash prices have hit bottom.
The crop price index[1. Calculated using historical spot prices of key NPK-consuming crops: corn, wheat, soybean, and rice] reached its peak of 115 in June 2016. Soybean prices led this spike, and they rose the most—by as much as 35% YTD—followed by a 20% increase in corn prices and an 11% increase in wheat prices.
Prices of crop commodities such as corn, wheat, and soybeans are impacted by supply and demand, which is represented in a ratio known as stock-to-use. This can help in gauging the market for crops, which impact farm incomes and, in turn, fertilizer companies such as PotashCorp (POT), Mosaic MOS), and CF Industries (CF).
These three companies make up 8.5% of the VanEck Vectors Agribusiness ETF (MOO), which invests about 32% of its portfolio in agricultural chemical companies.
In this series, we’ll look at the current state of the stock-to-use ratio for corn, wheat, and soybeans. In each part, we’ll discuss how the global inventories for each of these three crops have changed over the years.
We’ll also look at the impact on prices for these three commodities and why investors should track the stock-to-use ratio.