This year has been a weak one for most agribusiness companies, which produce and sell fertilizers, seeds, and crop protection products. Let’s look at this weakness in further detail.
Performance in 2017
Earnings may be among the most important indicators of a stock’s future performance, with positive earnings growth translating into stock price growth and investment returns. In the above chart, we’ve plotted the historical earnings performance of nine agribusiness companies. For most companies, earnings were significantly lower in the two most recent years than in the preceding three years. Whereas the agribusiness space was expected to improve in 2017, it didn’t.
The impact was visible in these companies’ stock performance. This year, only a handful of companies have outperformed the S&P 500 (SPY) and the VanEck Vectors Agribusiness ETF (MOO). Intrepid Potash (IPI), FMC (FMC), and CF Industries (CF) beat the benchmark indexes, while CVR Partners (UAN), Mosaic (MOS), and Israel Chemicals (ICL) saw losses. PotashCorp (POT), Agrium (AGU), and Monsanto (MON) delivered returns but underperformed the indexes.
What depressed the industry?
Fertilizer players’ turnaround was due to fertilizers’ higher price realization. While some fertilizer products saw higher prices year-over-year, some remained weak. Whereas potash and urea prices largely improved in the second half of 2017, phosphate fertilizer prices were muted. Fertilizer prices were primarily depressed due to supply imbalance. To learn more about fertilizer prices, read Fertilizer Price Update: Week Ended December 15.
In this series, we’ll discuss agribusiness companies’ weak 2017 performance and key drivers of their low earnings. We’ll also discuss 2018 expectations and conclude this series with earnings estimates for the next 12 months.