Fertilizer affordability plays a critical role in fertilizer demand. We’ll use the Fertilizer Affordability Index issued by the Mosaic Company (MOS). Mosaic publishes the index each week. It shows the current fertilizer affordability of three key NPK (nitrogen, phosphorous, and potassium) fertilizers to key fertilizer consuming crops like corn, wheat, and soybean.
The Fertilizer Affordability Index stood at 0.72x in the week ending January 12, 2018. The index moved sideways last week. It was the third consecutive week that the index moved sideways. Last week, fertilizer affordability was higher than 0.65x in the same week in 2017. The Fertilizer Affordability Index is indexed to one in the base year of 2005. A level below one means that fertilizers are affordable compared to the base year, which is what you can see in the above chart.
The direction in NPK fertilizer prices and crop prices determines where fertilizer affordability will stand. Earlier, we saw that with the exception of urea, phosphate and potash fertilizers were broadly higher YoY (year-over-year), which might have raised the index YoY. An index moving higher might indicate that fertilizers are becoming less affordable compared to crops, which could be negative for producers (XLB) like Nutrien (NTR), Mosaic (MOS), Intrepid Potash (IPI), and CF Industries (CF).
For more updates on the fertilizer industry, visit Market Realist’s Fertilizer page.