The gross margin is the most important measure we have for assessing the performance of agricultural fertilizer (SOIL) (COMP-INDEX) companies like CF Industries Holdings (CF), Agrium (AGU), PotashCorp (POT), and Mosaic (MOS).
Gross margin by segment
The above chart compares CF Industries’ 4Q16 gross margins with product tons in 4Q15, which gives us a better picture of each segment’s gross margin performance.
Ammonium nitrate and ammonia’s gross margins fell the most during 4Q16. The ammonium nitrate gross margin per product ton fell from $7 to zero per product ton in 4Q16. Ammonia’s gross margins fell from $154 per product ton in 4Q15 to just a dollar per product ton in 4Q16. UAN margins fell from $57 to $15 year-over-year and granular urea gross margin from $69 per product ton in 4Q15 to $57 per product ton in 4Q16.
The Other segment’s (supplying to industrial customers) gross margins fell from $29 per product ton to $27 in 4Q16.
Overall, CF Industries’ gross margins per product ton for each segment suffered significantly during 4Q16. Notably, unlike the previous quarter, the gross margin per product ton for CF’s segments were at least flat to positive, which implies that the company sold its products at or above cost.
The falling gross margin per ton trickled down to the company’s bottom line. We’ll discuss this in the next part of the series.