Fertilizer industry is subdued
The 2Q16 performance of fertilizer companies wasn’t impressive. However, this was priced into the stocks. It’s understood that the current NPK[1. nitrogen, phosphorous, and potassium] market is in a state of excess capacity compared to demand. Other factors include:
- low cost of raw materials
- currency devaluations in key countries
- ongoing expansion projects that have yet to come online
- falling farm income that has somewhat impacted demand
- delayed purchases on the back of buyers anticipating another price decline
These factors all put some downward pressure on fertilizer prices.
Fertilizer prices have been lower this year compared to 2015. As a result, six out of eight producers in the above chart saw a decline in their top line due to falling fertilizer prices.
We provide a weekly update on key prices for fertilizers such as ammonia, urea, DAP/MAP (diammonium/monoammonium phosphate), and potash. For our latest report, please read Weekly Update: Fertilizer Stocks Extended Their Losses. Knowing the direction of fertilizer prices is important for companies and investors alike.
The key focus in the agricultural fertilizer industry (MOO) has been the direction of prices and shipments of fertilizers such as nitrogen, phosphorous, and potassium. The near-term market environment will dictate the direction of the companies within this industry.
There are several indicators that investors can use to gauge the movement for fertilizer prices and shipments. However, it’s better to get this information from the management of fertilizer companies. In this series, we’ll discuss the earnings calls of major fertilizer producers—PotashCorp (POT), Agrium (AGU), CF Industries (CF), and Mosaic (MOS)—to get a sense of direction for investors.
In the next article, we’ll discuss nitrogen fertilizers.