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Fertilizers Were More Affordable Last Week

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Fertilizer affordability

Earlier in this series, we discussed how NPK fertilizer prices moved for the week ending October 14 and over the year. It’s important to look at these prices relative to crop price levels because it helps determine fertilizers’ affordability. When crop prices are high, a farmer will likely earn more income. However, in a soft crop price environment, a farmer might look to cut down the costs of fertilizers and other overheads.

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Fertilizer affordability

In the above chart, Mosaic (MOS) calculates fertilizer affordability by measuring the fertilizer price index (key fertilizers indexed to 2005) over the crop price index (key fertilizer consuming crops indexed to 2005). For the week ending October 14, fertilizer affordability fell slightly from 0.62x to 0.61x. A ratio below 1 means that fertilizers are more affordable than during the base year.

The above ratio of 0.61x means that plant nutrients were more affordable last week. They’re fairly affordable compared to the levels in 2005 and 2015 when the affordability ratio was 0.77x.

It isn’t surprising to see that current fertilizers prices are more affordable compared to the base year. Prices have fallen significantly. Companies such as PotashCorp (POT), Agrium (AGU), and CF Industries (CF) lowered their cost of production. They offered deep discounts by keeping fertilizers affordable for farmers (MOO). With fertilizer and crop prices trading at multiyear lows, it will be interesting to see how the ratio changes in the near term.

Remember, you can keep checking in with this weekly Market Realist series to track fertilizer prices. Fertilizer prices are crucial for companies like Mosaic, PotashCorp, Agrium, CF Industries, and Intrepid Potash (IPI).

You can also visit Market Realist’s Agricultural Fertilizer page for ongoing details and updates on these individual companies.

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