More From Xun Yao Chen
Why time favors fast food business owners during strikes
The restaurant industry’s high employee turnover also makes it harder for fast food companies to unionize. Even within the restaurant industry, quick service shows the highest turnover.
Must-know: Majority of fast food workers “not” above 25 years old
Why the unionization of all fast food workers, which would increase the bargaining power of employees and possibly lead to higher wages, in quite unlikely.
Why do most workers at McDonald’s work part-time?
Part-time work is most likely an industry-wide characteristic within the food retail business.
Why fast food business owners can’t offer $15 per hour
From a business perspective, restaurant owners can’t possibly increase wages to $15 per hour.
Syria strike would raise gas prices and reduce restaurants’ sales
Why higher gasoline prices can reduce people’s leftover spending at restaurants, which will negatively affect restaurant sales.
Must-know: China’s July urea export shoots up to a record
Increased supply will drive exports to a record Given the increased supply, Chinese firms have been exporting some of their urea, a type of nitrogenous fertilizer. While exports have historically remained close to zero during the busy season, export activity was above 200,000 metric tonnes per month this year, which suggests domestic manufacturers are willing […]
Retail urea price faces waterfall decline, negative for producers
The significance of retail ammonia price While wholesale prices affect producers’ revenues, analysts use retail urea price to assess how expensive nitrogenous fertilizers are to farmers. Because farmers are also concerned about making profits, fertilizer prices can alter farmers’ purchase behavior. When fertilizers becomes cheaper, farmers will buy more. But when fertilizer prices become more […]
Why are potash producers increasing capacity?
Introduction Most often, investors expect new capacity addition plans as a positive indicator of booming business. This is because companies often increase their capacity following a period of demand boom. But capacity increases can be negative, as we saw with several fiber optics companies back during the tech bubble, when earnings plummet on falling demand […]
Wholesale ammonia prices have been crashing
Ammonia prices Wholesale ammonia prices are a key driver of revenue for fertilizer companies, such as CF Industries Inc. (CF), Agrium Inc. (AGU), Potash Corp. (POT) and Rentech Inc. (RTK). Naturally, higher ammonia prices are positive for these nitrogenous fertilizer producers’ revenues, earnings, cash flows and share prices. But lower prices are negative. Falling wholesale […]
Mosaic and CF Industries could be severely undervalued (Part 5)
Continued from Part 4 Why buy back? Investors may wonder why Mosaic Co. (MOS) is looking to buy back shares instead of distributing the earnings as dividends. From a company’s standpoint, the value of the company in the market today doesn’t matter. Whether it returns cash when the share prices are high or low, it […]
Mosaic and CF Industries could be severely undervalued (Part 4)
Continued from Part 3 Source of funding As Mosaic Co. (MOS) postpones its potash expansion for one or two years, and fiscal year 2013’s working capital increase reverses (largely due to an inventory build-up), we could expect the company to generate a free cash flow after dividends amount of ~800 million per year over the […]
Mosaic and CF Industries could be severely undervalued (Part 2)
Back to Part 1 Share of market cap While $3.7 billion and $2.7 billion of cash may not seem like a lot compared to Apple’s ~$150 billion, it’s crucial for investors not to get distracted by the absolute amount. What’s important for investors is knowing how much “excess cash” they’re receiving based on how much […]
World urea prices fall to $320, negative for fertilizer stocks
Fertilizer prices: Influential to revenues The price of fertilizer is a key metric that influences fertilizer companies’ revenues. This is especially true for nitrogenous fertilizer producers because demand for their products, such as ammonia and urea, is more price inelastic compared to demand for potash and phosphate, as farmers must reapply them year-over-year to help […]
Urea falls to 1,701 renminbi in China but utilization crashes
The impact of China’s urea prices China’s urea prices can have a significant impact on global fertilizer prices. Although the production cost of urea is on the higher end, as urea production uses a large source of nitrogen extracted using coal instead of natural gas, coal prices can have a significant impact on the cost […]
Why potash prices fell and how the fall affects potash stocks
Significance of potash price Potash price is one of the key metrics that affect potash producers’ revenues. When prices for potash rise, they have a direct positive impact on revenue. As revenue climbs, so do margins, earnings, cash flows, and share prices. However, when price falls, it has a negative impact on companies’ financial accounts. […]
Corn in good shape, but potential negative for fertilizers next year
Crop condition Crop condition is an indicator published every week by the United States Department of Agriculture (USDA) during the planting and harvest season. The indicator is useful in estimating the yield that farmers will be able to harvest this year. Solid percentages often point to strong crop production, which tends to alleviate pressure on […]
Why potash stocks around the world crash as Uralkali leaves Belarus Potash Company
Industry concentration Industry concentration is a factor that affects competition. When only a few firms occupy a large portion of the industry’s revenue, competition tends to be less, as companies try to live with each other to maintain profits. On the other hand, when there are a large number of firms vying for market share, […]
Why investing in seed is different than investing in fertilizer (Part 2)
Continued from Part 1 Monsanto and DuPont Two industry giants dominate the seed industry, Monsanto Co. (MON) and DuPont (DD), which together held ~62% of the industry’s revenue in 2012. Why are these two companies dominant players in the industry? Let’s explore. Patent protection One big differentiator between seed and fertilizer stocks is patentability. Companies […]
Why investing in seed is different than investing in fertilizer (Part 1)
Investing in fertilizers and seed stocks Fertilizer and seed stocks are both part of the agriculture industry. As they highly correlate with each other, investors tend to think investing in one is like investing in the other. From September 2005 to mid-2012, the correlation between the two industries, using major companies’ share prices, was 0.86.[1. […]
Why potash fertilizer stocks may be better for a retirement investment (Part 2)
Continued from Part 1 Part 2: The NPK ratio In Part 1, we explained how increased use, as well as balanced application, of fertilizers can increase yield. To assess which fertilizer farmers most under-apply, we must first understand the NPK ratio of each country, as well as the total consumption of each type of fertilizer. […]
Why potash fertilizer stocks may be better for a retirement investment (Part 1)
Part 1: Balanced nutrient application Aside from weather, climate, soil quality, irrigation, and the amount of fertilizers applied to crops, the balance of the three types of fertilizers—nitrogen, phosphate, and potash—significantly influences crop yields. Farmers, unfortunately, don’t always have the knowledge to apply the scientifically recommended amount of fertilizers. In some cases, they’re unable to […]
Why natural gas price affects nitrogenous fertilizer stocks (Part 1)
Natural gas and nitrogenous fertilizers Natural gas is a major raw material input in the production of nitrogenous fertilizers, such as urea and ammonia, ranging from 40% to 70% of cost of goods sold. A higher natural gas price increases the cost of goods sold and compresses margins. This in turn lowers earnings and free […]
Why Agrium Inc. suspending capacity addition will affect other producers (Part 1)
The importance of capacity utilization Capacity utilization measures how much of an industry’s or company’s available production output is being used. It’s based on dividing actual output by potential output. Because an industry or firm will often try to match production to demand, a rising capacity utilization rate means faster growth in demand relative to […]
Why Chinese producers are driving nitrogenous fertilizer prices down (Part 2)
Continued from Part 1 Operating rate rises as China becomes more competitive Historically, the expense of using coal to produce nitrogen-based fertilizers has kept Chinese firms away from increasing production, because they would have had to sell the fertilizers at a loss. As a result, operating rate (capacity utilization) in China has been lower than […]
Why Chinese producers are driving nitrogenous fertilizer prices down (Part 3)
Continued from Part 2 Increased supply will drive exports to a record Given the increased supply, Chinese firms have already begun exporting some of their urea, a type of nitrogenous fertilizer. While exports have historically remained close to zero during the busy season, export activity has remained above 200,000 metric tonnes a month this year. […]
Why Chinese producers are driving nitrogenous fertilizer prices down (Part 1)
How China affects the global fertilizer market China, the world’s largest producer of nitrogen (a chemical used to make nitrogenous fertilizers for growing plants) occupies roughly 40% of global production capacity. Although much of its output is sold to domestic farmers—as an export tax of as much as 75% during the on-season restricts domestic firms […]
Weaker rupee lowered farmers’ demand for potash in 2012, how about 2013?
Just like the U.S. dollar is a key influence to crop prices, the strength or weakness of the Indian currency, the rupee, has a significant impact on potash demand. As potash is traded globally, the standard currency for exchange is in U.S. dollars. When the Indian rupee weakens, it is often a negative for potash […]
Short term moves in natural gas has limited impact on fertilizer costs
Natural gas is a major input in the production of nitrogenous fertilizers, such as urea and ammonia. Therefore, when the natural gas price in the United States rises, it is a negative move for producers. Natural gas price rose on the week ending March 15th The Henry Hub Natural Gas Spot Price, a benchmark for […]
Low US natural gas price should continue to benefit domestic fertilizer producers
Natural gas is a major input in the production of nitrogenous fertilizers, such as urea and ammonia. According to Terra Nitrogen Company L.P.…
Analysts’ demand estimates favor potash over other fertilizers
When looking at an industry, one of the first things investors can look at is demand growth. Just like an eight percent increase in gross domestic product…
US phosphate inventory hitting previous highs
The phosphate industry is quite oligopolistic, meaning a handful of firms control most of the supply, with 5 major companies producing 75% of the world’s supply.
Corn price hits record in 2012, favorable for fertilizers
Corn prices often drive fertilizer prices. Among the three major crops, corn, soybean and wheat, corn requires more nitrogen based fertilizers.
Brent crude oil moves nitrogenous fertilizer prices
Brent crude oil price is a leading indicator for nitrogenous fertilizer revenues. When the price of Brent oil rises, it’s generally followed by a rise in ammonia prices.