The Fertilizer Affordability Index: An Update

Last week, which ended December 8, 2017, saw a slight rise in the Fertilizer Affordability Index issued by Mosaic (MOS). The index can be used primarily to determine the affordability of fertilizers such as nitrogen, phosphorous, and potassium compared to key fertilizer-consuming crops such as corn, wheat, and soybeans.

Last week, the Fertilizer Affordability Index inched higher week-over-week to 0.70x, from 0.68x. The index level continues to be below 1.0x, indicating that fertilizer affordability remains high compared to the base year. The base year for this index is 2005 when it was indexed at 1.0x. A level below 1.0x means that fertilizers are affordable compared to the base year, while a level above 1.0x means they are less affordable compared to the base year.

Looking at the above chart, we see that the index has risen steeply since May 2017, which we believe is due to an increase in the prices of fertilizers that we saw in the earlier parts of this series. However, PotashCorp (POT), Agrium (AGU), and CF Industries (CF) have indicated that their earnings have benefited from higher affordability.

There will always be a demand for fertilizers due to their ability to increase crop yield per acreage. However, the industry goes through cycles due to factors such as crop prices, fertilizer production capacity, fertilizer availability, energy prices, and government programs.

At Market Realist, we track all these factors and their impact on the industry (MOO) as they happen. Be sure to check out our Agricultural Fertilizer page.