Are Fertilizers Becoming More or Less Affordable?



The Fertilizer Affordability Index

For the week ended July 7, the Fertilizer Affordability Index showed a fall from the previous week. The Fertilizer Affordability Index is issued by Mosaic (MOS) and boils down the relationship between crop prices and fertilizer prices in a single ratio.

The index uses 2005 as a base year. A ratio of below one means that the fertilizers were more affordable than they were in the base year, while a ratio above one means that fertilizers are less affordable than in the base year.

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Weekly movement

Last week, the Fertilizer Affordability Index fell to 0.52x week-over-week from 0.55x. In the chart, you can see that last week’s index hit a fresh yearly low, which is highly positive for farmers and indicates a potential demand uptick.

Last week’s Fertilizer Affordability Index of 0.52x is much lower than the 0.57x we saw in the corresponding week in 2016. As producers such as PotashCorp (POT), Agrium (AGU), and CF Industries (CF) are working to lower the costs of production, the benefit appears to be passed on to customers. But we can’t rule out producers (MXI) that have, in the past, sold fertilizers below the cost of production in the hope that the low pricing situation would be temporary.

Of course, now that we’re in the earnings season, we’ll receive more meaningful updates from the above producers on the direction of prices going forward. Be sure to check in with Market Realist for updates.


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