Commodity producers have seen choppy trading so far this year due to subdued global trends and commodity-specific risks. This is also true for the agribusiness market, and especially so in the fertilizer segment.
The agribusiness market is bearing the brunt of lower prices for chemicals, such as potash, urea and sulphur, used in fertilizers. The downtrend can be traced to sluggish global demand and a supply glut, uncertainties in the potash market, and low crop prices due to a longer planting season (read: Inside the Recent Plunge in the Corn ETF).
Additionally, dismal performance by the fertilizer segment and falling earnings estimates across the space have added to the plight of the industry, which has been pushed way down in terms of Zacks Industry Rank. In fact, share prices of some of the top players such as Potash Corporation of Saskatchewan (POT), Mosaic (MOS) and Agrium (AGU) have faced a significant amount of trouble since summer.
This corner of the market continues to deteriorate due to weakening potash fundamentals as we head toward the end of the year.
Potash Price in Focus
Potash prices have been declining since midsummer when the Russian producer Uralkali ended the partnership with the Belarusian company Belaruskali. This trend in prices will likely continue in the near term as Uralkali has decided to raise potash production by 3.5 million tons by 2014 by expanding its capacity to the optimum level. This increased production would lead to an oversupply condition in the global market.
Further, the demand for potash remained weak in India, the fourth largest potash consumer after the U.S., China and Brazil, thanks to their weakening currency. The Indian rupee plunged 15% since the start of the year.
As if this wasn’t enough, the space is also having to deal with reduced projections for potash prices and sales this year due to the break-up of the potash cartel.
Falling potash prices are hurting producers across the globe, leading to lower revenues, and in turn hampering margins.
Though the demand/supply imbalance would continue to put pressure on fertilizer prices in the short term, the long-term fundamentals look promising. This is especially true given the ever-expanding world population that would lead to higher consumption of fertilizers in order to meet the growing food demand.
As such, the companies in the agribusiness industries such as manufacturers of seeds and fertilizers, and farm-machineries will benefit from booming demand (read: 3 ETFs for Insatiable Global Food Demand).
ETFs to Consider
With that being said, long-term investors could definitely benefit from the current weakening trends for potash. While investing in fertilizer producers is certainly an option, there are a couple of agribusiness ETFs that provide a nice play in the beaten down fertilizer segment with much lower risk.
The Global X Fertilizers/Potash ETF (NYSEARCA:SOIL)
This fund provides a great deal of exposure to the in-focus segment by tracking the Solactive Global Fertilizers/Potash Index. The ETF holds about 22 securities and includes the largest and most liquid global firms that are active in some aspects of the fertilizer industry.