Calendar 2016 has been anything but positive for investors in nitrogen fertilizer stocks. One of the largest nitrogen fertilizer producers in the US, CF Industries (CF), has seen its stock fall 30% YTD (year-to-date) and is currently trading at $28.5.
The nitrogen industry is at a low point of its business cycle, and not even nitrogen companies seem to know if the business cycle has hit it a bottom. CVR Partners (UAN) has seen YTD returns of -36.3%, while Terra Nitrogen (TNH), an MLP (Master Limited Partnership) has returned a mere 3.2% YTD. PotashCorp (POT), which has exposure to potash and phosphate fertilizers aside from nitrogen, has returned 2% so far in 2016.
Why this decline?
The key reason for this decline stems from the weak farm economy, wherein prices of crops have tumbled as a result of rising production. (Read Market Realist’s most recent monthly update Cream of the Crop? Analyzing Corn, Soybean, and Wheat Prices to learn more.)
Remember, low crop prices affect farmers’ profitability, as do their purchasing decisions for input materials like fertilizers.
Meanwhile, as the market awaits a turnaround in the weak agricultural environment, the Royal Bank of Canada lowered its rating for CF Industries. We’ll discuss this further in the next part of the series.