Earlier in this series, we saw how NPK (nitrogen, phosphorus, and potassium) fertilizer prices moved in the week ending March 31, 2017. Comparing these prices to crop prices helps determine fertilizer affordability.
When crop prices are high, farmers can see higher income levels. In a soft crop price environment, farmers could look to reduce their costs for fertilizers and other overhead expenses.
Fertilizer Affordability Index
In the week ending March 31, 2017, the Fertilizer Affordability Index fell slightly to 0.60x from 0.62x the previous week. During the same week in 2016, the index stood at 0.69x. It indicates that fertilizer affordability was better on March 31, 2017, than during the same week in 2016.
A ratio below 1.0x means that fertilizers are more affordable than during the base year. Fertilizer companies such as Intrepid Potash (IPI), Israel Chemicals (ICL), and CF Industrial Holdings (CF) lowered their cost of production and offered deep discounts to farmers (MOO).
With fertilizer and crop prices trading at multiyear lows, it will be interesting to see how the ratio changes in the near term.
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.