Fertilizer Stocks: Mosaic, CF Earnings Soar But Still Fall Short

Fertilizer plays Mosaic (MOS) and CF Industries (CF) both posted strong Q2 results that fell short of even greater expectations. Both CF and Mosaic stock fell in late Monday stock market action. This latest round of earnings reports comes as falling fertilizer prices have finally cooled off one of the stock market’s hottest groups since early 2021.

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The CF earnings miss came amid a restructuring charge related to high-cost U.K. operations. Mosaic cited higher cost inputs and lower sales amid transportation issues and a “compressed” spring application season.

Still, both Mosaic and CF offered pretty upbeat outlooks. CF sees tight demand “for the foreseeable future,” with profits buoyed by favorable natural gas spreads between its U.S. base of operations of and Europe and Asia. Mosaic, anticipating strong market conditions into 2023, authorized a new $2 billion share buyback.

Nutrien (NTR) reports late Wednesday. Insecticide leader FMC (FMC) reports late Tuesday.

Fertilizer and agricultural markets remain tight and the geopolitical situation uncertain enough that another big run for the group can’t be ruled out. Still, the latest developments, though mixed, are probably net-negative for the group.

Mosaic Earnings

Mosaic earnings leapt 211% to $3.64 a share, but trailed estimates of $3.97. Revenue ran up 92% to $5.373 billion, but still fell a touch short.

Mosaic said potash production should exceed recent historical levels for the remainder of 2022. Phosphate sales of  1.7 million tons in Q2 were down 15% from a year ago, but should range from 1.7-2 million tons in Q3. Potash sales should rise to 2.4-2.6 million tons.

CF Earnings

CF earnings surged 385% to $5.58 a share, including a restructuring charge of $162 million involving shuttering of U.K. manufacturing operations. Excluding the charge, CF earnings may have exceeded the $5.92 FactSet estimate.

Revenue jumped 113% to $3.389 billion, though came in shy of some estimates.

“We continue to believe it will take several years to replenish global grains stocks, underscoring the critical role CF Industries plays supplying nutrients to farmers around the world during a period when marginal producers in Europe and Asia face production curtailments due to historically high natural gas prices,” CEO Tony Will said in a statement.

The company noted that corn acreage planted in the U.S. will likely undershoot CF expectations of 91-93 million acres at the start of 2022 due to poor weather in parts of the country during the spring that affected planting decisions.

Fertilizer Stock: MOS, CF, NTR

Heading into the last earnings period, the Chemicals-Agricultural industry group was ranked No. 2 out of 197 based on price performance and momentum. That has slipped to No. 50, as fertilizer prices have retreated.

MOS stock slipped 3.2% to 49.75 in late Monday action, even with Mosaic announcing a new $2 billion buyback. Shares fell 2.45% in Monday’s regular session, just below its 50-day moving average.

Mosaic has pulled back 35% from April highs, but is holding well above the buy point it left behind when Russia invaded Ukraine.

CF stock lost 2.3% to 92.25 after hours, having dipped 1.1% in trading ahead of its earnings report. CF has outperformed the other fertilizer stocks, pulling back just 17% from April highs and holding above its 50-day line, with high overseas natural gas prices a key reason.

Nutrien stock lost 2.3% on Monday to close below its 50-day line. NTR stock has shed 29% since its April peak.

Key Fertilizer Market Developments

On Monday, a ship left the Ukrainian port of Odesa carrying 26,500 tons of corn, the first such shipment since Russia’s Feb. 24 invasion. More may follow, providing some relief for tight agricultural markets and high crop prices. Still, grain shipments may not approach their pre-invasion level.

High crop prices are one key to fertilizer demand and prices, because farm profitability determines how much gets planted and how much farmers can afford to pay for crop inputs. But fertilizer prices shot up so high, that it crimped demand. Now, though prices have come down a good deal, farmers seem to be dragging their feet on filling inventories for the next planting season, possibly in hope that prices will continue to fade.

A host of forces contributed to the surge in fertilizer prices, including restrictions on exports from Russia and Belarus. A spike in natural gas prices, the feedstock for nitrogen-based fertilizer, and U.S. tariffs on supplies from Morocco also contributed. China banned exports of phosphates, which are key not only to feeding the Chinese people but powering electric vehicles.

Mosaic said in its Q2 earnings statement that global crop inventories relative to demand are already at 20-year lows and global events won’t help. “The war in Ukraine, high temperatures in North America and Europe, and developing drought conditions in parts of South America highlight the risk for reduced yields globally,” Mosaic said. That’s bullish for crop prices and, by extension, fertilizer prices.

In potash, the shortfall in supply from Belarus will only be partially offset by higher output elsewhere. Meanwhile, Chinese export restrictions on phosphates “appear likely to be extended through the remainder of the year and into 2023,” Mosaic said.

Persistently high natural gas prices in Europe, as Russia cuts shipments through the Nord Stream pipeline, continue to support high nitrogen fertilizer prices. However, nitrogen fertilizer plays CF and Nutrien recently got dealt bad news with the U.S. International Trade Commission striking down tariffs on imports of Urea Ammonium Nitrate from Russia and Trinidad and Tobago.

The U.S. ITC also is said to be considering an appeal of its 2021 decision to impose tariffs on fertilizers from Morocco, which had been a big win for Mosaic.

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