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Are Fertilizers Becoming Less Affordable?

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Fertilizer affordability

Fertilizer affordability affects sales volume for fertilizer companies (NANR) such as Mosaic (MOS), Nutrien (NTR), CF Industries (CF), and Intrepid Potash (IPI). Lower affordability negatively impacts demand, and fertilizer affordability has been deteriorating over the past few weeks.

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Affordability index

Last week, the Fertilizer Affordability Index, which is issued by the Mosaic Company, rose to 0.92x from 0.87x a week ago. This index level of close to one can be interpreted as fertilizer affordability becoming weaker compared to the levels observed since January 2016.

As we discuss the affordability index, it’s important to also dig into what negatively impacted fertilizer affordability. Essentially, this affordability index is a ratio of fertilizer prices over crop prices. Week-over-week, fertilizer prices (numerator) have risen slightly, but the crop prices (denominator) have fallen faster. The crop price index fell ~3.7%, which was the primary reason for the spike in the index.

In other words, lower crop prices make fertilizer less affordable, and this may cause a slowdown in fertilizer purchases until crop prices start picking up.

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