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What Happens When Potash Prices Fall?

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Jul. 28 2016, Updated 10:04 a.m. ET

Potash prices

In the final part of this series, we’ll discuss potash prices, which have taken a beating this year. Potash companies such as PotashCorp (POT), Mosaic (MOS), Agrium (AGU), and Intrepid Potash (IPI) have all been negatively impacted by falling potash prices so far this year.

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MOP prices move sideways

For the week ending July 22, 2016, average MOP (muriate of potash) prices in Vancouver stood at $256 per metric ton, unchanged from the previous week. MOP prices in Vancouver fell by 16.6% YoY (year-over-year) compared to an average of $307 per metric ton last year. Similarly, YoY prices of MOP are significantly lower at other points. Last week, prices in Brazil fell by 35% YoY from $331 per metric ton. In Southeast Asia, standard MOP prices fell by 24% from $319 per metric ton YoY. In the Corn Belt, MOP prices fell by 35.5% YoY from $314 per metric ton.

These downward price movements show that the market for potash producers such as PotashCorp, Mosaic, Intrepid Potash, and Agrium remains challenging. You can gain exposure to materials companies through the iShares Global Materials ETF (MXI). MXI invests about 4.5% of its portfolio in agricultural chemicals including Dow Chemical (DOW) and DuPont (DD).

When prices are low, producers idle their production temporarily or sometimes even permanently, as the cost of production exceeds the selling prices. Larger players may seek out opportunities to lower costs by increasing scale. Thus, a low price environment also drives mergers and acquisitions.

To learn more about agricultural fertilizer companies, visit Market Realist’s Agricultural Fertilizers page.

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