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What Explains Agrium’s Loss in 3Q16?

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Wholesale average prices

While shipments for Agrium’s (AGU) Wholesale segment have risen YoY (year-over-year), but global prices for crop nutrients (MOO) like nitrogen, phosphates, and potassium have fallen significantly over the years, impacting companies like Intrepid Potash (IPI), CF Industries (CF), and Mosaic (MOS). These declines have offset gains from increases in shipment volumes.

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NPK prices

Agrium’s average realized price for wholesale NPK (nitrogen, phosphates, and potassium) fertilizers fell 33% from $433 per metric ton in 3Q15 to $289 per metric ton in 3Q16. Average prices for nitrogen fell 25% from $388 per ton to $291 per ton, whereas prices for urea fell the steepest—by 29% YoY to $269 per ton in 3Q16 from $380 per ton in 3Q15.

By contrast, average prices for ammonia, a key feedstock for other nitrogen fertilizers fell 27% to $378 per ton in 3Q16 from $296 per ton in 3Q15.

Potash and phosphates

Average realized prices for potash also fell ~36% in 3Q16 to $178 per ton YoY. Prices fell the steepest in international markets—by 38.6% YoY to $148 per ton from $241 per ton in 3Q15. Prices in domestic markets fell 34% to $223 per ton, down from $341 per ton one year ago. Similarly, phosphate prices fell 24% to $478 per ton in 3Q16 from $629 per ton in 3Q15.

These significant price declines help explain why agricultural fertilizer companies have experienced such significant earnings declines this year with Agrium even reporting a loss this quarter. For this reason, you have to track fertilizer prices, which we at Market Realist publish on a weekly basis, as closely as possible. (Read the latest price updates in our series Trick or Treat? Fertilizer Stocks Show Weakness before Earnings.)

In the next part, we’ll analyze the gross margins of Agrium’s Wholesale segment.

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