Fertilizer Makers In For Another Slow Quarter As Demand Wilts

Fertilizer companies Nutrien Ltd, Mosaic Co and CF Industries are expected to take a sales hit in the fourth quarter as farmers cut back on purchases to offset high energy costs.

"The inventory levels are low and they need to be restocked, yet the buying patterns are still very, very slow," says Steve Byrne from BofA US Chemicals Equity Research.

THE CONTEXT

Fertilizer companies posted strong earnings in the first half of 2022, when prices had soared to record highs after sanctions on major producers Russia and Belarus triggered a global supply shortage.

However, the war in Ukraine also lifted energy prices, increasing production costs for farmers and forcing them to reduce spending on fertilizers.

Nutrien has cut its profit forecast for 2022 twice since the second quarter, expecting lower demand for potash - a key nutrient for corn and other crops - in top markets Brazil and North America.

"We're likely to see another quarter of what I'll call depressed potash demand," said Seth Goldstein, equity strategy at Morningstar.

Nutrien, Mosaic and CF Industries all reported third-quarter results below market estimates.

Lower demand hurt prices of fertilizers later last year

Still, fertilizer demand is expected to improve this year as grain inventories deplete around the world amid a decline in wheat supplies from key exporter Ukraine.

North American farmers usually start applying fertilizer during spring and analysts expect demand to recover as prices scale back.

"If they cut back on fertilizer use, they are risking a lower yield when the price of the crop is excellent," said Byrne.

Expecting global supplies to remain tight, Nutrien had stuck with its plans to expand Canadian potash production by 20% to an annual 18 million tonnes by 2025.

Brazil and US are among the biggest fertilizer buyers

FUNDAMENTALS

Company Refinitiv Q4 Refinitiv Q4 EPS

revenue estimate estimate

Nutrien Ltd $7.43 billion $2.62

(up 5.1% YoY)

Mosaic Co $4.28 billion $2.26

(up 11.5% YoY)

CF Industries $2.84 billion $4.30

Holdings Inc (up 11.7% YoY)

WALL STREET SENTIMENT

Company Recommendation Median Price Target

Nutrien Thirteen of 25 C$93

analysts rate the

stock "buy" or

higher; 11 "hold"

and 1 "sell"

Mosaic Eight of 23 $55

analysts rate the

stock "buy" or

higher; 13 "hold"

and 2 "sell"

CF Industries Eleven of 21 $110

analysts rate the

stock "buy" or

higher; 9 "hold"

and 1 "sell"