Fertilizer customers

Farmers all over the world are key fertilizer customers. Since fertilizer is a cost that can impact farmers’ margins, it’s important to monitor farm economics and how they evolve over time.

Fertilizer Costs: Understanding Their Share in Operating Costs

Significant share

The above graph shows various operating costs for corn for a US farmer in 2015. According to the USDA (United States Department of Agriculture), fertilizer was the major cost of operations, accounting for as much as 41.0% of operating costs. It was followed by seeds, which accounted for 31.0%.

Following the bumper crop season in 2011, prices for corn took a hit, and farm income suffered. From 2012–2014, farm income for US corn farmers continued to fall year-over-year. In 2015, it rose only 2.0% year-over-year.

Fertilizer Costs: Understanding Their Share in Operating Costs

Impact on fertilizer

With falling farm income, costs need to be rationed carefully. Fertilizers can be a major cost of production. So farmers looking to reduce their fertilizer costs can significantly impact sales for agricultural fertilizer companies such as PotashCorp (POT), CF Industries (CF), Agrium (AGU), and Mosaic (MOS).

The fertilizer business is cyclical. During a boom time, fertilizer companies can earn high margins, which they can reinvest into capacity expansion. However, overcapacity leads to increased supply and eventually lower fertilizer prices. That triggers companies to idle some of their capacities or scrap expansion plans altogether until demand stabilizes fertilizer prices. In 2016, the agricultural fertilizer industry (SOIL) was in its bottom cycle, and we saw many companies idling their operations.

In the next part, we’ll take a look at the biggest players in the fertilizer industry.

Latest articles

This year, Pfizer (PFE) stock has fallen 0.34% and Bristol-Myers Squibb (BMY) stock has fallen 6.48%. Both companies are focused on strengthening their position in the high-growth oncology and immunology markets. Let's take a closer look at each.

Walt Disney’s (DIS) latest movie, Toy Story 4, has reportedly broken records in the opening weekend with $118 million in sales. However, the opening weekend collection was behind analysts’ expectations of at least $150 million in the first weekend.

24 Jun

Will Home Depot’s Upward Momentum to Continue?

WRITTEN BY Rajiv Nanjapla

As of June 21, Home Depot (HD) was trading at $209.39, which implies a rise of 9.7% since the announcement of its first-quarter earnings on May 21. Also, the company was trading at a premium of 32.4% from its 52-week low of $158.09 and a discount of 2.8% from its 52-week high of $215.43.

On June 21, Aurora Cannabis (ACB) made an announcement that indicated that it will move towards higher margin vape products. In addition, the company also believes concentrates and edibles will command higher margins. In anticipation of this development, the company announced the expansion of its facility to capitalize on growth related to these segments.

Shares of Mondelēz International (MDLZ) are scaling new heights thanks to its stellar gains so far this year. Mondelēz stock is up 38.0% on a YTD (year-to-date) basis, and it closed at $55.25—just a shade lower than its 52-week high of $55.71—on June 21.

24 Jun

How Long Will Facebook's Libra Fuel Bitcoin Rally?

WRITTEN BY Mayur Sontakke, CFA, FRM

Ever since the news about Facebook’s (FB) cryptocurrency project broke, Bitcoin has rallied on the hope that Facebook’s entry in the space will help make cryptocurrencies mainstream. Facebook’s cryptocurrency will be called Libra and will be governed by an association with 28 founding members across industries.