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March 25, 2022, 1:25 p.m. EDT

High fertilizer prices are creating pain for consumers and gains for investors

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By Debbie Carlson

Fertilizer stocks are among this year’s best performers as companies benefit from a big jump in prices for ingredients used to grow crops.

The top three U.S.-listed fertilizer producers, Mosaic /zigman2/quotes/203825795/composite MOS -0.12% , CF Industries /zigman2/quotes/209482112/composite CF -0.83% and  Nutrien /zigman2/quotes/207514607/composite NTR -0.24% , are up sharply this year, led by Mosaic’s 67% gain. CF Industries is up 41%, and Nutrien has rallied 38%. The S&P 500 Index /zigman2/quotes/210599714/realtime SPX -1.51% has slumped 5.5%.

Fertilizer stocks are riding the commodities boom. Prices for the three main types of nutrients have been rising for several months on the back of supply shortages and high energy prices. Russia’s invasion of Ukraine brought together a confluence of challenges in markets by limiting fertilizer exports from the region.

While the main producers are boosting output by forgoing scheduled factory maintenance, Patrick Donnelly, senior analyst at Third Bridge, says it will be several months before they can ramp up production to meaningfully alleviate a shortfall in supply. That could keep input prices — and stock values — elevated.

Investors interested in reaping the benefits of fertilizer companies should know it’s a small, opaque industry in the already niche commodity sector.

Read: The Russia-Ukraine war is fueling the ‘biggest supply shock to global grain markets’ in living memory

Fertilizer building blocks

There are many types of fertilizer, but three main inputs are nitrogen, phosphate and potash, and all have different market drivers. Nitrogen fertilizer is created through an industrial process, combining atmospheric nitrogen and natural gas to create ammonia, a building block to various nitrogen fertilizers, with urea being the most widely used. Phosphate and potash are mined.

All three fertilizer components are used in concert by farmers, and home gardeners may better recognize the combination as NPK — nitrogen, phosphorous and potassium. Of the three, nitrogen has the biggest volume and nutrient value, and of the three, must be applied annually.

Mosaic produces all three fertilizers; Nutrien is the world’s largest potash and third-largest nitrogen producer; and CF Industries makes only nitrogen.

U.S. fertilizer prices are up almost 400% from two years ago, which was a relatively low point in the past five years, says Josh Linville, director of fertilizer at StoneX. It’s difficult for the average person to track fertilizer prices because they trade in cash markets.

The seeds for high fertilizer prices were planted about two years ago when fertilizer and crop prices first fell during the onset of Covid-19, says Richard Wolfe, an analyst at CFRA.

Beginning in 2021, U.S. nitrogen production was damaged during last year’s winter storms in Texas, temporarily knocking energy capacity offline. In addition, U.S. phosphate imports fell because of a trade dispute, China reduced its nitrogen exports, and European producers including Norway’s Yara International /zigman2/quotes/202582198/delayed YARIY 0.00% last year curbed nitrogen output when natural gas prices there skyrocketed. Russia’s invasion of Ukraine led to a shuttering of potash exports from Russia and Belarus, which supply about one-third of global exports.

What it means for farmers and consumers

The fertilizer shortage comes at a time when Northern Hemisphere producers are gearing up for spring planting. Ben Maddox, director of farm operations at AcreTrader, says while some farmers locked in fertilizer prices this winter, others may be at the mercy of the spot market. He says depending on the crop planted, as corn uses more inputs than soybeans or wheat, total fertilizer costs can represent as much as 25% of a farmer’s direct operational costs per acre in a normal year.

Farmers planting grain crops this year have three choices. One is to opt for soybeans over corn to save on nitrogen costs, and early planting intention estimates suggest this is happening. They may limit phosphorous or potassium applications, relying on what’s still in the ground, or they still plant corn and reduce nitrogen applications.

“We could draw some broad conclusions that if we reduce fertilizer applications across the board, we may see slightly lower crop yields on average,” Maddox says.

$ 48.33
-0.06 -0.12%
Volume: 5.15M
Sept. 30, 2022 4:04p
P/E Ratio
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$16.69 billion
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$ 96.25
-0.81 -0.83%
Volume: 2.67M
Sept. 30, 2022 4:03p
P/E Ratio
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Market Cap
$19.18 billion
Rev. per Employee
$ 83.38
-0.20 -0.24%
Volume: 2.15M
Sept. 30, 2022 4:00p
P/E Ratio
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Market Cap
$45.18 billion
Rev. per Employee
-54.85 -1.51%
Volume: 2.22B
Sept. 30, 2022 5:55p
US : U.S.: OTC
$ 17.74
0.00 0.00%
Volume: 60,684
Sept. 30, 2022 3:46p
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