Fertilizers play Mosaic (MOS) and CF Industries (CF) both posted strong second-quarter results that fell short of even higher expectations. Shares of CF and Mosaic both fell in Monday night’s stock action. This latest round of earnings reports comes as falling fertilizer prices have finally chilled one of the hottest bands in the stock market since the start of 2021.
CF’s shortfall came amid a restructuring charge related to high-cost UK operations. Mosaic cited higher cost inputs and lower sales due to transportation issues and a “compressed” spring application season.
Still, Mosaic and CF offered a rather optimistic outlook. CF sees tight demand “for the foreseeable future,” with earnings supported by favorable natural gas spreads between its U.S. base of operations and Europe and Asia. Mosaic, anticipating strong market conditions through 2023, authorized another $2 billion share buyback.
Nutrien (NTR) reports late Wednesday. Responsible for insecticides FCM (FMC) reports late Tuesday.
The fertilizer and agricultural markets remain tight and the geopolitical situation sufficiently uncertain that another great race for the group cannot be ruled out. Still, the latest developments, while mixed, are likely downright negative for the band.
Mosaic’s earnings jumped 211% to $3.64 per share, but trailed estimates of $3.97. Revenue rose 92% to $5.373 billion, but still fell a little short.
Mosaic said potash production is expected to exceed recent historic levels for the remainder of 2022. Phosphate sales of 1.7 million tonnes in the second quarter were down 15% from a year ago, but are expected fluctuate between 1.7 and 2 million tonnes in the third quarter. Potash sales are expected to be 2.4-2.6 million tonnes.
CF’s profits jumped 385% to $5.58 a share, including a $162 million restructuring charge involving the closure of UK manufacturing operations. Excluding fees, CF’s revenue may have exceeded FactSet’s estimate of $5.92.
Revenue jumped 113% to $3.389 billion, although it was lower than some estimates.
“We continue to believe that it will take several years to rebuild global grain stocks, underscoring the critical role CF Industries plays in providing nutrients to farmers around the world during a time when marginal producers in Europe and Asia are facing production cuts due to historically high natural gas prices. “, CEO Tony Will said in a statement.
The company noted that corn acreage planted in the United States will likely fall below CF expectations of 91 to 93 million acres in early 2022 due to poor weather in parts of the country in the spring that affected decisions. of planting.
Fertilizer stock: MOS, CF, NTR
As the latest earnings period approached, the Chemicals & Agricultural Products industry group was ranked #2 out of 197 based on price performance and momentum. This slipped to No. 50 as fertilizer prices retreated.
MOS stock slid 3.2% to 49.75 late Monday, even as Mosaic announced another $2 billion buyout. The shares fell 2.45% in Monday’s regular session, just below its 50-day moving average.
Mosaic is down 35% from April highs, but remains well above the buy point it left behind when Russia invaded Ukraine.
CF stock fell 2.3% to 92.25 after hours, after falling 1.1% in trading ahead of its earnings report. CF outperformed other fertilizer stocks, falling only 17% from April highs and holding above its 50-day line, with high natural gas prices overseas a key reason .
Nutrien stock fell 2.3% on Monday to close below its 50-day line. NTR stock has lost 29% since its peak in April.
Key Fertilizer Market Developments
On Monday, a ship left the Ukrainian port of Odessa carrying 26,500 tons of corn, the first such shipment since the February 24 Russian invasion. Others could follow, bringing some relief to tight agricultural markets and high crop prices. Still, grain shipments may not approach pre-invasion levels.
High crop prices are one of the keys to fertilizer demand and prices, as farm profitability determines how much is planted and how much farmers can afford to pay for farm inputs. But fertilizer prices have risen so much that they have weighed on demand. Now, although prices have come down a lot, farmers seem to be dragging their feet to fill up stocks for the next planting season, perhaps in the hope that prices will continue to fall.
A host of forces contributed to the spike in fertilizer prices, including restrictions on exports from Russia and Belarus. A spike in natural gas prices, nitrogen fertilizer feedstock and US tariffs on supplies from Morocco also contributed. China has banned exports of phosphates, which are essential not only to feed the Chinese people, but also to power electric vehicles.
Mosaic said in its second-quarter earnings release that global crop inventories relative to demand are already at a 20-year low 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 of reduced yields globally,” he said. declared Mosaic. This is bullish for crop prices and, by extension, fertilizer prices.
In the case of potash, the supply shortfall from Belarus will only be partially offset by higher production elsewhere. Meanwhile, China’s export restrictions on phosphates “look likely to be extended through the end 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 fertilizers play CF and Nutrien recently received bad news with the United States International Trade Commission waiving tariffs on imports of urea and ammonium nitrate from Russia and Trinidad -and-Tobago.
The US ITC is also reportedly considering appealing its 2021 decision to impose tariffs on fertilizers from Morocco, which had been a big win for Mosaic.
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