The fertilizer industry is riding on solid market fundamentals underpinned by strong global demand and prices for crop nutrients. The underlying strength of the agricultural market, rising crop commodity prices and healthy farm economics are driving demand for fertilizers globally.
Demand for fertilizers is also backed by the need to grow the production of grains to address rising consumption. Moreover, the constant need of growers to nourish their crops, replenish nutrients in the soil following a harvest and boost yields to feed a growing population support the bullish case for fertilizers.
Strong farm profits and higher planted acreage are expected to drive demand for fertilizers in the United States this year. Strong grower economics are also likely to support demand in other major markets such as Brazil and India. A tight global supply-demand balance is also driving fertilizer prices.
Farm economics have strengthened in the United States on the back of a spike in crop commodity prices and government support. According to the U.S. Department of Agriculture (“USDA”), net farm income is projected to be $111.4 billion in 2021. While net farm income is forecast to dip 8.1% from the 2020 level due to lower federal payments to farmers, it would still be 21% higher than its 2000-19 average, based on USDA projections.
It is worth noting that farm profits shot up to their highest level in seven years in 2020 on the back of record levels of federal payments to growers in the wake of the pandemic. Notwithstanding the expected year-over-year decline, solid farm income backed by higher agricultural commodity prices is likely to incentivize farmers to spend on crop nutrients this year.
Meanwhile, phosphate markets are likely to remain robust in the near term on solid demand and pricing dynamics. Tight availability along with firm demand is driving up phosphate prices globally. Potash prices have also strengthened on the back of robust global demand, aided by strong grower economics, higher crop prices and low global inventory levels.
Demand for nitrogen fertilizer also remains healthy in major markets. Global nitrogen requirement is being driven by demand in North America, India and Brazil. Healthy corn acres in the United States are expected to spur nitrogen demand in North America in 2021. Moreover, demand for urea imports into Brazil and India remains favorable. Lower global supply availability stemming from reduced operating rates and a spike in energy prices are also likely to boost nitrogen prices.
Moreover, strong global demand coupled with supply constraints have provided a boost to crop commodity prices. Notably, prices of corn and soybean have rallied to multi-year highs. Higher agricultural commodity prices bode well for crop nutrient demand. Expectations of higher planted corn and soybean acres globally this year on the back of higher crop prices also suggest a pickup in fertilizer demand.
Favorable Zacks Industry Rank
The Zacks Fertilizers industry currently carries a Zacks Industry Rank #25, which places it in the top 10% of more than 250 Zacks industries. The favorable rank reflects the industry’s strength. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The Zacks Fertilizers industry has outperformed the broader market in a year’s time. While the industry has rallied 73.1%, the S&P 500 has returned 34%.
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4 Stocks Worth a Bet
The companies in the fertilizers space are well placed to benefit from strong pricing and demand dynamics for crop nutrients. Factors like healthy farm income and expectations of increased planted acres are expected to drive demand globally. As such, the time is ripe for the investors to add some fertilizer stocks that offer significant growth prospects.
Below we highlight four stocks, with a solid Zacks rank, that are good options for investment right now. Our research shows that stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities.
You can see the complete list of today’s Zacks #1 Rank stocks here.
CF Industries Holdings, Inc. CF: The Illinois-based company sports a Zacks Rank #1. The company should benefit from higher nitrogen fertilizer demand in major markets. Higher nitrogen prices are also expected to support the company’s bottom line. CF Industries also remains committed to boost shareholders’ value by leveraging strong cash flows.
The company has expected earnings growth rate of 121.8% for the current year. The Zacks Consensus Estimate for current-year earnings for the company has also moved up 55.2% in the past 60 days. The company’s shares have also rallied around 80% over the past year.
Nutrien Ltd. NTR: This Canada-based company carries a Zacks Rank #2. The company should benefit from solid demand and higher prices for fertilizers, especially potash. It is expected to gain from strong potash sales volumes this year on the back of solid domestic and overseas demand. Nutrien is also well placed to gain from acquisitions, cost efficiency and increased adoption of its digital platform. The company also continues to grow its footprint in Brazil through acquisitions, including Tec Agro.
Nutrien has expected earnings growth rate of 78.3% for the current year. The Zacks Consensus Estimate for earnings for the current year has also been revised 18.5% upward over the last 60 days. The stock has also shot up roughly 71% over the past year.
Yara International ASA YARIY: The Norway-based company has a Zacks Rank #2. It should benefit from the strength in the nitrogen fertilizer market. Rising nitrogen prices are expected to lend support to its margins. Yara should also gain from a recovery in its industrial business on the back of a rebound in demand.
The company has expected earnings growth rate of 27.3% for the current year. The consensus estimate for earnings for the current year has also been revised 1% upward over the last 60 days. The stock has also gained roughly 50% over the past year.
Sociedad Quimica y Minera de Chile S.A. SQM: The Chile-based company carries a Zacks Rank #2. The company should benefit from being the low-cost producer of potassium chloride, potassium sulfate and potassium nitrate. Moreover, higher demand is expected to boost sales volumes in its specialty plant nutrition business this year. Rising demand is also expected to drive prices of potassium chloride.
The company has expected earnings growth rate of 34.4% for the current year. The consensus estimate for the current year has also been revised 5.2% upward over the last 60 days. The stock has also rallied around 62% over a year.
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