Earlier in this series, we discussed how NPK fertilizer prices moved in the week ending December 2. It’s important to look at these prices relative to crop price levels because it helps determine fertilizer affordability. When crop prices are high, farmers will likely earn more income. In a soft crop price environment, farmers might look to lower costs for fertilizers and other overheads.
For the week ending December 2, fertilizer affordability rose to 0.66x from 0.65x week-over-week. A ratio below one means that fertilizers are more affordable than during the base year. The ratio of 0.66 shows that fertilizers became less affordable last week compared to a week ago.
It isn’t surprising to see that current fertilizer prices are more affordable compared to the base year because prices have fallen significantly. Companies such as Intrepid Potash (IPI), Israel Chemicals (ICL), and CF Industries (CF) lowered their cost of production and offered deep discounts to farmers (NANR). With fertilizer and crop prices trading at multiyear lows, it will be interesting to see how the ratio changes in the near term.
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).
You can also visit Market Realist’s Agricultural Fertilizers page for ongoing details and updates on these individual companies.