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Fertilizer Stocks Struggled on June 25 amid the Trade War

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Global market

On June 25, the stock market continued to bleed due to risks from the escalating trade war. The S&P 500 Index (SPY) fell almost 1.3%.

Global markets are more connected than ever. President Trump’s trade war might come with more costs than benefits. The market is pricing in the uncertainty, which is evident in the falling markets.

Agribusiness volume

According to the latest US agricultural trade data update issued by the United States Department of Agriculture, US agricultural exports are $86.8 billion YTD (year-to-date) compared to $75.3 billion in imports. The US has a surplus of $11.5 billion in 2018 YTD. In fiscal 2017, the total exports were $140.5 billion compared to imports of $119.1 billion—a surplus of $21 billion.

Among agricultural exports, corn, soybeans, and wheat were some of the top export items by value to China, Mexico, Japan, and the European Union.

Fertilizer stocks

Under the umbrella of the agribusiness industry, fertilizer stocks have also come under pressure. In the above chart, except for Nutrien (NTR), most of the stocks were down. Intrepid Potash (IPI), CF Industries (CF), and Mosaic (MOS) were among the top three losses yesterday. These companies produce NPK (nitrogen, phosphorous, and potassium) fertilizers that are mainly consumed by corn, soybeans, and wheat.

Impact

With President Trump’s tariffs on metals and other items, trading partners have already announced retaliatory measures that impact agricultural commodities. For example, Mexico has imposed tariffs of 20% on US apples, pork products, and potatoes. China also hit back with tariffs on soybeans among other products. Trade tariffs have a negative impact on the demand for these crops, which leads to an inventory buildup and eventually lower planting and fertilizer use. If the trade war escalates, we might see more downward movement in agribusiness stocks (MOO).

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