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Fertilizer performs Mosaic (MOS) and CF Industries (CF) each posted robust Q2 outcomes that fell wanting even larger expectations. Each CF and Mosaic inventory fell in late Monday stock market action. This newest spherical of earnings experiences comes as falling fertilizer costs have lastly cooled off one of many inventory market’s hottest teams since early 2021.
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The CF earnings miss got here amid a restructuring cost associated to high-cost U.Ok. operations. Mosaic cited greater value inputs and decrease gross sales amid transportation points and a “compressed” spring software season.
Nonetheless, each Mosaic and CF provided fairly upbeat outlooks. CF sees tight demand “for the foreseeable future,” with earnings buoyed by favorable pure gasoline spreads between its U.S. base of operations of and Europe and Asia. Mosaic, anticipating robust market situations into 2023, approved a brand new $2 billion share buyback.
Nutrien (NTR) experiences late Wednesday. Insecticide chief FMC (FMC) experiences late Tuesday.
Fertilizer and agricultural markets stay tight and the geopolitical state of affairs unsure sufficient that one other huge run for the group cannot be dominated out. Nonetheless, the newest developments, although blended, are in all probability net-negative for the group.
Mosaic Earnings
Mosaic earnings leapt 211% to $3.64 a share, however trailed estimates of $3.97. Income ran up 92% to $5.373 billion, however nonetheless fell a contact quick.
Mosaic mentioned potash manufacturing ought to exceed current historic ranges for the rest of 2022. Phosphate gross sales of 1.7 million tons in Q2 have been down 15% from a 12 months in the past, however ought to vary from 1.7-2 million tons in Q3. Potash gross sales ought to rise to 2.4-2.6 million tons.
CF Earnings
CF earnings surged 385% to $5.58 a share, together with a restructuring cost of $162 million involving shuttering of U.Ok. manufacturing operations. Excluding the cost, CF earnings might have exceeded the $5.92 FactSet estimate.
Income jumped 113% to $3.389 billion, although got here in shy of some estimates.
“We proceed to consider it should take a number of years to replenish international grains shares, underscoring the vital position CF Industries performs supplying vitamins to farmers all over the world throughout a interval when marginal producers in Europe and Asia face manufacturing curtailments as a consequence of traditionally excessive pure gasoline costs,” CEO Tony Will mentioned in a press release.
The corporate famous that corn acreage planted within the U.S. will doubtless undershoot CF expectations of 91-93 million acres firstly of 2022 as a consequence of poor climate in elements of the nation in the course of the spring that affected planting choices.
Fertilizer Inventory: MOS, CF, NTR
Heading into the final earnings interval, the Chemical compounds-Agricultural business group was ranked No. 2 out of 197 based mostly on worth efficiency and momentum. That has slipped to No. 50, as fertilizer costs have retreated.
MOS inventory slipped 3.2% to 49.75 in late Monday motion, even with Mosaic asserting a brand new $2 billion buyback. Shares fell 2.45% in Monday’s common session, just under its 50-day shifting common.
Mosaic has pulled again 35% from April highs, however is holding properly above the purchase level it left behind when Russia invaded Ukraine.
CF inventory misplaced 2.3% to 92.25 after hours, having dipped 1.1% in buying and selling forward of its earnings report. CF has outperformed the opposite fertilizer shares, pulling again simply 17% from April highs and holding above its 50-day line, with excessive abroad pure gasoline costs a key motive.
Nutrien inventory misplaced 2.3% on Monday to shut beneath its 50-day line. NTR inventory 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 primary such cargo since Russia’s Feb. 24 invasion. Extra might comply with, offering some reduction for tight agricultural markets and excessive crop costs. Nonetheless, grain shipments might not method their pre-invasion stage.
Excessive crop costs are one key to fertilizer demand and costs, as a result of farm profitability determines how a lot will get planted and the way a lot farmers can afford to pay for crop inputs. However fertilizer costs shot up so excessive, that it crimped demand. Now, although costs have come down an excellent deal, farmers appear to be dragging their toes on filling inventories for the subsequent planting season, probably in hope that costs will proceed to fade.
A number of forces contributed to the surge in fertilizer costs, together with restrictions on exports from Russia and Belarus. A spike in pure gasoline costs, the feedstock for nitrogen-based fertilizer, and U.S. tariffs on provides from Morocco additionally contributed. China banned exports of phosphates, that are key not solely to feeding the Chinese language folks however powering electrical automobiles.
Mosaic mentioned in its Q2 earnings assertion that international crop inventories relative to demand are already at 20-year lows and international occasions will not assist. “The battle in Ukraine, excessive temperatures in North America and Europe, and creating drought situations in elements of South America spotlight the danger for decreased yields globally,” Mosaic mentioned. That is bullish for crop costs and, by extension, fertilizer costs.
In potash, the shortfall in provide from Belarus will solely be partially offset by greater output elsewhere. In the meantime, Chinese language export restrictions on phosphates “seem more likely to be prolonged via the rest of the 12 months and into 2023,” Mosaic mentioned.
Persistently excessive pure gasoline costs in Europe, as Russia cuts shipments via the Nord Stream pipeline, proceed to assist excessive nitrogen fertilizer costs. Nonetheless, nitrogen fertilizer performs CF and Nutrien just lately acquired dealt unhealthy information with the U.S. Worldwide Commerce Fee putting down tariffs on imports of Urea Ammonium Nitrate from Russia and Trinidad and Tobago.
The U.S. ITC additionally is alleged to be contemplating an enchantment of its 2021 resolution to impose tariffs on fertilizers from Morocco, which had been an enormous win for Mosaic.
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