Fertilizer Stocks Are Skyrocketing-- What's Going On?
[Reupload] Fertilizer shortages incoming, here are the stocks that benefit.
Why Is Fertilizer In The News?
Roughly one-third of all seaborne fertilizer trade and nearly half of global urea exports travel through the Straight of Hormuz every year, and its closure has sent urea prices surging approximately 50% in under two weeks. Urea is a nitrogen-based fertilizer created from a reaction between ammonia and carbon dioxide.
The closure of the Straight thanks to the ongoing conflict between Iran and the USA/Israel is happening at the worst possible moment.
The Northern Hemisphere spring planting season is starting soon, so demand is about to peak as supply is being choked off.
Fertilizer producers like CF Industries (CF) and Nutrien (NTR) have seen their stock prices skyrocket as the war continues.
CF Industries is already up from $95 to $135 just in the span of the two weeks of this conflict so far. And we’ll talk about CF, as well as what other stocks benefit from this crisis, but first we have to go over why these stocks are starting to move…
It’s important to note that the Gulf countries produce ~49% of global urea exports, ~30% of global ammonia exports, ~30% of global phosphate exports, and 45–50% of global sulfur exports- sulfur being an essential input for phosphate fertilizer production. So, these are significant portions of the supply for nearly all inputs related to fertilizer production.
The country of Oman is the only Gulf producers with possible export routes outside of the Straight, so every other producer is effectively land-locked by the blockade created by Iran. Which doesn’t even have to be a literal blockade…
Just the threat of drone strikes, or mines laid in the sea is enough to ensure that most of the transportation vessels in the region will not try to enter or leave.
The creation of ammonia is a process that requires the usage of natural gas, and the Gulf countries are a source of incredibly cheap gas.
So, that’s why we find ourselves in this situation. And why there are so many fertilizer plants in the region. Natural gas represents 60–80% of ammonia’s variable production costs, making cheap gas the primary factor of consideration as to where to build a new fertilizer plant.
Middle Eastern producers pay $1–3/MMBtu for feedstock gas while European competitors, for example, pay $10–17/MMBtu.
That translates to a several-hundred-dollar cost advantage for fertilizers and makes producers simply unable to compete on price in other regions of the world.
Nitrogen fertilizers like urea are vital to growing crops like corn, which affect a variety of industries as as it used to feed roughly 40% of the livestock in the USA, and is used in around 90% of domestic ethanol production.
Nitrogen fertilizer accounts for ~59% of total global use, phosphate is ~21%, and potash is ~20%. About half of all fertilizer produced is consumed domestically and never enters international trade, making the seaborne trade that passes through Hormuz even more concentrated and critical.
The urea-to-corn price ratio, a key measure of farmer affordability, jumped from 75 bushels per ton in December to 126 bushels per ton by March 9th, approaching record levels and signaling that many corn farmers will lose money on every acre planted.
For fertilizer production, the closure of the Straight isn’t even the extent of the damage. Shortages of LNG will affect fertilizer production in countries like India and Bangladesh. The country of Bangladesh has already shut down 5 of its 6 fertilizer plants. Some of the Asian countries are heavily dependent on supplies from the Gulf states.
Investment Options
So, with all of that said, we know that the fertilizer industry is going to see large price spikes, as it has already… what stocks can we buy to benefit from this?
The key is going to be buying companies operating outside of the Middle East, obviously, but also producers that can access cheap gas without relying on imports from the region. The obvious winners in this scenario are producers in areas like North America, where there is plenty of cheap, unaffected natural gas production.
CF Industries (CF) — The clear #1 beneficiary
CF Industries is a pure-play nitrogen producer, operating the world’s largest ammonia production complex in Donaldsonville, Louisiana. Their total ammonia [production capacity is approximately 10 million short tons/year across facilities in Louisiana, Iowa, Mississippi, Ontario (Canada), the UK (Billingham), and in a Trinidad joint venture. Products include ammonia, granular urea, UAN, ammonium nitrate, and diesel exhaust fluid.
CF has a $4 billion joint venture targeting the production of 1.4 MT/year of blue ammonia, also under development in Louisiana.
Nutrien (NTR)
Nutrien is the world’s largest fertilizer company, covering all fertilizer inputs. They are the world’s largest potash producer (~20% global market share), a major nitrogen producer, and a significant phosphate player.
Nutrien’s potash comes from six Saskatchewan mines with 20.6 million MT of nameplate capacity
Nitrogen production guidance for 2026 is 9.2–9.7 MT from plants in Georgia, Louisiana, Ohio, Texas, and Trinidad.
Phosphate guidance is 2.4–2.6 MT from North Carolina and Florida operations.
CVR Partners (UAN)
CVR Partners operates two nitrogen fertilizer plants in Kansas and Illinois.
The Kansas facility is the only North American nitrogen plant using petroleum coke gasification rather than natural gas, which insulates it more from gas pricing spikes. Combined annual capacity exceeds 800,000 tons ammonia and 1.3 million tons of urea ammonium nitrite.
Mosaic Company (MOS)
Mosaic is the world’s largest integrated phosphate producer with significant potash operations, as well. Phosphate capacity targets 6.9–7.2 MT from Florida and Louisiana facilities, while potash output targets 8.7–9.1 MT from Saskatchewan mines. Revenue runs approximately $12 billion annually. The problem with mosaic is that they produce phosphoric acid, which requires sulfur which has been soaring in price. So that is going to lead to more modest gains than other players in the space.
LSB Industries (LXU)
LSB is a pure-play North American nitrogen producer based in Oklahoma City, producing anhydrous ammonia, UAN, ammonium nitrate, and nitric acid with approximately 875,000 tonnes gross ammonia capacity annually.
Intrepid Potash (IPI)
Intrepid is a 100% U.S.-based potash producer operating solar evaporation facilities in New Mexico and Utah. Annual capacity is approximately 200,000–250,000 short tons of potash plus 150,000–200,000 tons of langbeinite, which contains potassium, magnesium, and sulfur.
So, besides the stocks mentioned already, there are a variety of potash producers or developers like Sage Potash, Brazil Potash, Buffalo Potash, and more. But we can’t cover them all, right.
The effects the closure of the Straight will have on fertilizer is in many ways worse than the oil and gas industry, since it’s not nearly as easy to come up with alternative sources of fertilizer. There are no strategic fertilizer reserves, this is capex-intensive industry or mining operations.
And even if the Straight reopens tomorrow, there is still damage from drone or missile strikes on various assets in the Middle East. It would take time to clear any mines in the Straight, production would need to be ramped up again. All of these issues would lead to sustained shortages for several quarters, if not longer.
It will be crucial to watch how things are unfolding in the region, especially following whether the conflict continues to escalate or parties begin to back off. We will see how it unfolds.
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