Producer Prices Show Slumping Crop & Flat to Higher Fertilizer Prices in Q4

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The Bureau of Labor Statistics issued its report on producer prices for the month of December and noted that prices of finished goods dropped another 0.2%. Producer prices have declined every month in Q4. How did crop and fertilizer prices do during the quarter and how did this impact the stock prices of fertilizer companies like Potash Corp (NYSE: POT), Agrium (NYSE: AGU), Mosaic (NYSE: MOS), CF Industries (NYSE: CF) and its subsidiary Terra Nitrogen (NYSE: TNH)?  What can we expect as we move further into 2013?

Fertilizer prices were somewhat mixed during the quarter with potash and phosphate prices basically flat with increases of 0.7%  and 1.0%, respectively.  This is roughly in line with the basically flat quarter-over-quarter pricing Mosaic reported in its fiscal Q2 earnings release. Pricing of ammonia and nitrogen was a bit more favorable during the quarter with strong price increases of 5.7% and 2.9%, while urea prices moved lower during the quarter. 

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Globally, fertilizer prices behaved a little differently than in the United States with phosphate and potash prices falling sharply while urea prices were only down slightly.

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Despite the sturdy price performance of most of the fertilizer types during the quarter, fertilizer stocks generally underperformed the market during this seasonally slow period, which generally bottoms out in February.

<img height="196" src="http://maysreport.files.wordpress.com/2013/01/ag-chem-stock-performance-oct-dec-20121.jpg" width="594" />

Crop prices weakened during the quarter with soybeans leading the decline, followed by corn. Price declines were the result of expected ideal growing conditions that would lead to record levels of production in Brazil and Argentina. Wheat prices held steady as the U.S. winter wheat crop is in worse condition than last year, which threatens to curtail production.

<img height="346" src="http://maysreport.files.wordpress.com/2013/01/ppi-change-in-wheat-corn-soybean-prices-q3-2012.jpg" width="484" />

Looking Ahead

With a new potash contract signed with China at the end of December at $400 a ton, we can expect potash prices to fall during Q1 of 2013. This will impact revenues of both Potash Corp. and Mosaic.  Volume will be the key to their calendar first quarters; keeping an eye on inventories is a must.  CF Industries, Terra Nitrogen and Agrium will likely have a better calendar Q1 than Mosaic and Potash Corp due to their exposure to nitrogen and expectations of another year of record corn acres planted.

Despite the recent surge in the price of  corn and soybeans, I expect price increases to remain subdued and perhaps fall slightly from current levels as the harvest season picks up in South America. Wheat prices, which normally moves with corn, may have to diverge if the wheat crop condition continues to deteriorate.


Neither The Mays Report nor G C Mays has a position in any stocks mentioned. G C Mays does have a bear credit spread on March Corn & Soybeans. The Motley Fool owns shares of CF Industries Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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