Earlier in this series, we saw how NPK (nitrogen, phosphorus, and potassium) fertilizer prices moved in the week ended February 24, 2017. Comparing these prices to crop prices 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.
Fertilizer Affordability Index
In the week ended February 24, 2017, the Fertilizer Affordability Index remained unchanged at 0.64x from the week prior. A ratio below 1.0x means that fertilizers are more affordable than during the base year. Companies such as Intrepid Potash (IPI), Israel Chemicals (ICL), and CF Industries (CF) lowered their costs of production and offered deep discounts to farmers (SOIL) (DJIA-INDEX). With fertilizer and crop prices trading at multiyear lows, it will be interesting to see how the ratio changes in the near term.
For an in-depth overview of the agricultural fertilizer industry, read Agricultural Fertilizer Industry: Your Comprehensive Overview.
Mosaic (MOS) calculates fertilizer affordability by comparing the fertilizer price index (key fertilizers indexed to 2005) with the crop price index (key fertilizer consuming crops indexed to 2005). For ongoing details and updates on the industry, be sure to visit Market Realist’s Agricultural Fertilizers page.