Fertilizer affordability is one of the key factors that determines the demand for fertilizer producers (NANR) such as PotashCorp (POT), CVR Partners (UAN), Terra Nitrogen (TNH), and Israel Chemicals (ICL). Let’s look at how fertilizer affordability moved last week.
For the week ending April 28, the Fertilizer Affordability Index fell slightly to 0.58x—compared to 0.59x the previous week. The Fertilizer Affordability Index, compiled by Mosaic (MOS), is calculated by comparing the Fertilizer Price Index (key fertilizers indexed to 2005) with the Crop Price Index (key fertilizer consuming crops indexed to 2005). The Fertilizer Affordability Index was scaled to one in 2005—the base year. Any point lower than one means that fertilizers are more affordable compared to the base year.
Year-over-year, the Fertilizer Affordability Index was lower from 0.29x. 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. Earnings season is approaching.
For ongoing details and updates on the industry, visit Market Realist’s Agricultural Fertilizers page.