For the week ending August 18, fertilizers continued to become less affordable compared to recent weeks. Fertilizer affordability can help indicate the demand for fertilizers compared to the crop prices of major fertilizer consuming crops.
Last week, the Fertilizer Affordability Index rose from 0.61x to 0.63x a week ago. The index is issued by Mosaic (MOS), which was indexed to one in 2005—the base year for the index’s calculation.
Any point below one would mean that fertilizers are more affordable than the base year, while a point above one would mean that fertilizers are less affordable than the base year. If you look at the above chart, the fertilizer affordability for most of 2017 and 2016 was below one, which indicates that the affordability remained high in the past two years.
While the affordability remained high for fertilizers, companies such as PotashCorp (POT), Mosaic (MOS), Agrium (AGU), and Intrepid Potash (IPI) haven’t been favorable—mainly because of the contraction in margins caused by falling fertilizer prices.
The falling prices might also help explain why the affordability remained high in recent years. The fertilizer industry (MOO) saw high capacity addition flooding the market with excess material.
We’ll continue to monitor the affordability each week. To track fertilizer prices each week, visit Market Realist’s Agricultural Fertilizers page.