Potash Corp of Saskatchewan Inc

Intrepid Potash’s (IPI) gross margin for its Potash segment swung to positive territory in 1Q17, while its Trio margins were in the negative territory.

Not only did CF Industries’ earnings fall year-over-year (or YoY) in 1Q17, its margins were also significantly lower YoY. To understand why, let’s dig deeper into the cost curve.

Over the past five years, CF Industries’ (CF) gross and EBITDA (earnings before interest, tax, depreciation, and amortization) margins have contracted.

On June 9, Monsanto (MON) stock closed at $117.5 per share.

PotashCorp’s average realized prices for phosphate fell ~15% to $423 per ton in 1Q17, as compared to $499 per ton in 1Q16.

In recent years, agricultural fertilizer companies like PotashCorp (POT), Agrium (AGU), Israel Chemicals (ICL), and CF Industries (CF) have incurred higher capital expenditures.

Urea prices have fallen by an average of 14% annually over the past five years. The consistent fall has been due to falling energy costs, leading to lower production costs across the board.

In 4Q16, the average price of ammonia for the five producers in our chart fell by an average of 38%.

According to PotashCorp, the outlook for potash appears positive in 2017. North America, Latin America (especially Brazil), India, and China have been running low on inventory.

Wall Street analysts estimate that Mosaic (MOS) could report gross income of $209 million, which represents a 41% year-over-year fall from $355 million in 4Q15.

Overall shipments for PotashCorp’s Phosphate segment fell 6.0% in 4Q16 to 0.72 million tons, from $0.76 million tons in 4Q15.

In 4Q16, the overall average nitrogen selling price fell 37.0% to $182 per ton, from $288 per ton in 4Q15.

PotashCorp (POT), which is currently trading at an EV-t0-EBITDA multiple of 15.0x, is trading far above its low point of 6.0x a year ago.

Global corn prices are significantly lower than they’ve been for the past four years, considering the high global corn stock-to-use ratio last year.

Potash salts are the key cost of production for potash, so most producers have an integrated production.

Since phosphate rock is one of the major costs of production, companies such as Mosaic (MOS) have an integrated production process.

Energy as well as freight and handling can be the two biggest costs for nitrogen fertilizer production.

Fertilizers are commonly labeled using a convention that includes the amount of NPK available in the mix.

There’s a constant need to bring up the fertility levels necessary to grow crops, and that need is fulfilled by fertilizers.

Increasing crop yield on available farmland could be the best solution to the problem of increasing crop production.

Monsanto reported operating income or EBIT of $247 million, which rose from -$272 million in fiscal 1Q16.

The global soybean stock-to-use ratio for soybeans rose to ~25.1% in December 2016, as compared to 24.8% in November 2016.

Potash’s selling price has been on the decline for the last few quarters and is key to the performances of potash producers (NANR).

Unlike corn, the global soybean stock-to-use ratio is lower compared to the global stock-to-use ratio of 26.5% last year.

The Phosphate segment’s shipments rose 23% to ~2.5 million tons from ~2 million tons in 3Q15—compared to guidance of 2.4 million–2.7 million tons.

Nitrogen selling prices PotashCorp (POT) sells nitrogen fertilizers such as ammonia, urea, and nitrogen solutions. It competes with other natural gas–based nitrogen producers such as CF Industries (CF) and Terra Nitrogen (TNH), which primarily produce and sell nitrogen fertilizers. Agrium (AGU), which is a part of the PowerShares International Dividend Achievers ETF (PID), produces nitrogen fertilizers […]

The global stock-to-use ratio for soybeans rose 1.6% to ~23.5% in October—compared to 22% in September. Soybean’s ratio is lower than last year.

Monsanto’s business is the best fit for Bayer’s Crop Science segment—it contributes ~22% of Bayer’s revenue. The segment is similar to Monsanto’s business.

For the week ending September 9, average weekly anthracite coal prices in China fell 4.2% to $81.1 per metric ton—compared to the previous week.

The global nitrogen fertilizer capacity is abundant, allowing it to fulfill the current market requirements. This has put pressure on nitrogen prices, which fell significantly over the past year.

While most North American producers use natural gas to produce nitrogen fertilizers, CVR Partners (UAN) mainly uses pet coke as a hydrogen source.

The gross margin rate for Mosaic’s Phosphate segment fell significantly in 2Q16, to 10% from 21% in 2Q15.

Fertilizer prices are one of the key drivers for fertilizer stocks. So investors and analysts watch fertilizer prices closely.

In 2014, the cost of production for DAP per ton ranged from $190 to $450 per metric ton, as we can see in the chart.

The Mosaic Company (MOS), which acquired CF Industries’s (CF) phosphate business in 2014, is the largest producer of phosphate globally.

Ammonia prices in the Southern Plains had the steepest fall of 10.5% last week, continuing the previous week’s trend.

Investors in the fertilizer industry (XLB) must actively track the relationship between crop prices and fertilizer prices. This, in turn, impacts agricultural chemical companies.

Israel Chemicals, which shipped 0.5 million metric tons during the recent quarter, saw the largest jump in shipment growth—20% year-over-year.

Last week, nitrogen producers CF Industries (CF), CVR Partners (UAN), Terra Nitrogen (TNH), and PotashCorp (POT) ended in the red.

Last, average MAP prices in Brazil inched up to $353 per metric ton from $352 per metric ton the previous week.

MAP (monoammonium phosphate) is the second-most used phosphate fertilizer after DAP (diammonium phosphate).

Natural gas is the key raw material for the production of nitrogen fertilizers such as ammonia and urea.

Ammonia prices for Tampa CFR (cost and freight) moved down 1.6% to $315 per metric ton compared to $320 per metric ton in the previous week.

In the international market, ammonia at the Black Sea, Ukraine, inched up to $275 per metric ton FOB, a rise of 1.9% from the previous week.

Mosaic’s Potash segment generated $2.5 billion in net sales, excluding intersegment sales, in 2015. This accounted for 28% of the company’s total net sales.

Fertilizer prices and input costs affect all players in the industry. Survival and profitability come down to where a company stands on the cost curve.

Mosaic purchases certain raw materials at fixed costs to be consumed over time, but the selling prices of its finished goods can fluctuate rapidly.

Mosaic doesn’t sell directly to farmers. Its customers include cooperatives, wholesale distributors, retail chains, and independent retailers.

In the 2010–2011 planting season, phosphate fertilizers accounted for about 23% of total NPK fertilizers consumed globally.

Ammonia was trading at $310 per metric ton as of the week ending March 4, 2016. It fell $1 from the previous week ending February 26, 2016.