Fertilizer play Nutrien topped Q2 earnings estimates but revised full-year guidance lower after the close on Wednesday. This week's fertilizer earnings have come in mixed relative to expectations for the recently highflying fertilizer group. Still, tight agricultural market conditions, high natural gas prices and geopolitics may keep the group in favor.
On Monday, Mosaic posted strong Q2 results, though short of high expectations. Excluding a charge, CF Industries scored a solid beat.
CF stock initially pulled back late Monday after reported earnings fell short. But the "miss" was entirely due to 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 and prices in Europe and Asia. Mosaic, anticipating strong market conditions into 2023, authorized a new $2 billion share buyback.
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 are mixed, including renewed shipments of grain from Ukraine.
Nutrien Earnings
Nutrien EPS rose 181% to $5.85, 15 cents ahead of estimates. Sales grew 49% to $14.51 billion, falling short of some estimates.
Nutrien lowered full-year EPS guidance to a range of $15.80-$17.80 from $16.20-$18.70. The company lowered potash and nitrogen sales volume guidance to reflect the impact of lower application in North America during the spring. Higher natural gas costs were another factor holding down nitrogen-related earnings.
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 appeared to exceed the $5.92 FactSet estimate. MarketSmith and FactSet credited CF with adjusted earnings of $6.21.
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. 47, as fertilizer prices have retreated.
NTR stock rose 1.1% before the open on Thursday, after slipping 0.3% in Wednesday's regular session. NTR stock is below its 50- and 200-day lines and 30% below April highs.
MOS stock has edged up 0.5% this week, rising above its 50-day line. While earnings were mixed vs. expectations, Mosaic's new $2 billion buyback didn't hurt. Mosaic has pulled back 33% from April highs, but is holding well above the buy point it left behind when Russia invaded Ukraine.
CF stock gave back 1.3% on Wednesday, after climbing 3.95% on Tuesday after reporting Q2 results. CF has outperformed the other fertilizer stocks, pulling back just 15% from April highs and holding above its 50-day line, with high overseas natural gas prices a key reason.
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.
