By G C Mays
While the most recent producer price data show that overall producer price increases continue to moderate, it also provides a glimpse into what kind of pricing fertilizer companies Mosaic (MOS), Potash Corp. (POT), Agrium (AGU), and CF Industries (CF) are receiving in their respective operating quarters.
A look at changes in producer prices received (not seasonally adjusted) between the end of February and April, which represents two-thirds of Mosaic's 4th quarter, illustrates continued firmness in potash pricing despite rising producer inventories, phosphate pricing that is slightly down, and as expected, rising ammonia, nitrogen and urea prices.
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Source: The Mays Report
Phosphate pricing has firmed up after being down 6.6 percent over three months ending in March. Potash pricing has been firm all along. However, high inventories are preventing Mosaic, Potash Corp, and Agrium from raising potash prices. This has the biggest impact on Potash Corp, to whom Canpotex allocates 54 percent of potash sales followed by Mosaic with a 37 percent allocation. Agrium brings up the rear with a 9 percent allocation. Canpotex is a Canadian potash exporting and marketing firm owned by Potash Corp, Mosaic, and Agrium.
Nitrogen, however, is a different story. With an estimated record 95.9 million acres of corn being planted, nitrogen prices have increased generally while UREA pricing has surged this spring, especially during the month of April. Agrium and CF Industries are the beneficiaries of this pricing environment. With roughly 80 percent of its revenues based on nitrogen sales, CF industries has benefited the most from current prices, followed by Agrium, which has had on average more than 40 percent of its total tons sold during its fiscal second quarters over the last two years come from its nitrogen operations. Potash Corp also has nitrogen sales with roughly 10-12 percent of total tons sold being ammonia and about 9 percent UREA over the company's last two fiscal 2nd quarters.
While we only have one month's worth of price data for Potash Corp, CF Industries, and Agrium, Mosaic's 4th quarter concludes at the end of May and given current price levels, it looks like tons sold is the primary variable that will impact their fiscal 4th quarter revenues. The company's primary revenue stream is phosphate, which the company expects to sell at or near the high-end of their estimated range of 2.3 to 2.7 million tons. However, companies with the most exposure to nitrogen prices should fare best over the current operating quarter.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.