Fertilizer affordability last week, which ended on August 10, was largely unchanged, as reported by Mosaic (MOS). The Affordability Index, which represents crop prices over fertilizer prices, gives us a picture of how the relationship between the two has progressed.
Last week, the Fertilizer Affordability Index was unchanged at 0.73x from the week ended August 3. However, the index was lower than the peak of 0.79x a month ago as of July 3. The lower the index level, the higher the fertilizer affordability. Higher fertilizer affordability is usually positive for companies (NANR) such as Nutrien (NTR), Mosaic (MOS), CF Industries (CF), and Israel Chemicals (ICL) since it leaves higher profit margins for farmers.
The Fertilizer Affordability Index was range-bound from January 2016 to May 2018. However, the index started pushing higher as fertilizer prices rose. The current affordability remains slightly higher than the average of 0.71x since 2010.
Fertilizer prices are key to the performances of fertilizer companies. Investors must closely watch the movement of fertilizer prices since they indicate how fertilizer companies will perform in their next earnings releases.