Farm Progress is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Bringing Wall Street to Main Street

Getty/iStockphoto Magnified glass looking at financial reports
What the latest round of earnings reports means for U.S. farmers.

If you’ve been watching the financial markets over the past couple weeks, you know that it is third quarter earnings season on Wall Street. This means that publicly traded companies have been releasing updated earnings reports with shareholders, as per fiscal and legal obligations to those shareholders.

But what does it matter to farmers?

At first glance, earnings season may only seem relevant to career traders. But many agricultural input companies are actually publicly traded entities, and the quarter earnings release provides insights on where the broader agricultural industry may be headed.

The overall sentiment many agribusinesses are touting is that the high commodity price environment favors increased farmer buying power, which ultimately benefits these businesses. But these companies are also increasingly leery of supply chain issues like rising freight, raw materials, and other production costs.

Farmers are booking 2022 inputs aggressively this fall, which is made clear by the revenue growth each company reported over the past couple weeks. Syngenta noted a 30% increase in biological product sales annually in the third quarter as farmers double down on yield potential. Mosaic shared that 90% of Q4 sales have already been committed and priced while Nutrien’s potash orders for 2021 are completely filled.

The increased farmer buying purchases reflects the looming uncertainty over the agricultural sector as global fertilizer supplies remain tight and U.S. growers are competing with an increasing amount of acres across the world. About 57 million more acres were harvested across the world over the past two years and rising commodity prices are only encouraging higher production globally.

Farmers are increasingly hedging against supply chain logjams and possible production shortages by buying 2022 inputs this fall as opposed to waiting until just before planting season next spring. And that may be a sage decision as several companies cite global energy turmoil as a potential choke point in the coming months.

What’s next?

Energy crunches in Europe, Russia, and Asia have already stalled production at fertilizer plants in the respective regions. OPEC has not yet signaled interest in raising production to meet growing global energy demand in the post-pandemic world, keeping prices high and supplies tight.

If global energy production is not increased in the coming months, these shortages may translate into delayed fertilizer shipments to the farmgate next spring. Russian phosphate producer PhosAgro cited the energy crisis and China’s export ban on fertilizers until next June as key drivers of prices in the phosphate market.

“At the moment, we see that, despite the approaching end of the high-demand season, fertilizer prices are continuing to recover in global markets,” said PhosAgro CEO Andrey Guryev. “This trend is associated with an increase in natural gas prices in Europe and Asia, which has resulted in a localised decrease in the production of nitrogen-based fertilizers.”

“The limitation on exports of phosphate-based fertilizers from China in favour of domestic supplies will also support price trends through the end of the year.”

Expansion signals

To be sure, these companies are not hurting. In fact, Nutrien reported a new record for third quarter earnings on the retail growth. But companies are doubling down on the recent rise in demand and are investing the profits back into the company to expand production.

Nutrien is expanding its nitrogen and potash divisions while incorporating decarbonization projects to curb carbon dioxide emissions at its nitrogen plants. Mosaic opened a Canadian potash expansion project a month ahead of schedule and more development at other mines is underway.

“Mosaic's third quarter results were the strongest in more than a decade, as our business continues to realize the benefits of a favorable market amplified by our transformation efforts,” shared Mosaic President and CEO Joc O’Rourke.

“From the acquisition and optimization of Mosaic Fertilizantes to the acceleration of our Esterhazy K3 potash mine and the recent restart of the Colonsay potash mine, Mosaic has evolved into a business that we believe can deliver results throughout the cycle.”

Unfortunately for farmers, high prices are not likely to recede any time soon, especially if energy woes continue to foil economic growth this winter. Expansion plans will eventually help lower price pressure, but it likely will not happen by the time planters begin rolling next spring.

Locking in pricing now may be the best way to mitigate supply risks next spring. Despite the higher costs, crop budgets remain comfortably profitable – especially at current prices – so farmers would be wise to forward contract 2022 sales to cover those input costs this fall.

Author’s note:

I’ve been tracking earnings releases over the past couple weeks and created my own cheat sheet in the process. The notes below are my observations from each company’s earnings reports for the third quarter of 2021 and were used to formulate my aforementioned analysis. If you’d like to see the highlights from each company’s report for more fun facts, you can continue reading.


PhosAgro

Who they are: Leading global phosphate producer based out of Russia

Q3 2021 Earnings Released: October 21, 2021

Highlights:

  • Year-to-date phosphate fertilizer output up 0.2% to 7.6 million tonnes on higher DAP/MAP production
  • Year-to-date nitrogen-based fertilizer sales are 8% higher on high global demand
    • Production decreases in Europe due to energy crunch further tightening global supplies
  • Increases in production capacity for phosphate and NPK fertilizers anticipated going forward
  • Record commodity prices have increased farmer buying power
  • Lower U.S. production due to Hurricane Ida has also tightened global stocks
  • “Unprecedented rise in natural gas prices in Europe and Asia” will likely increase raw materials and production costs
    • It’s likely it will force fertilizer production in these regions to stall if energy supplies are not available, further restricting supplies

CEO Outlook: “At the moment, we see that, despite the approaching end of the high-demand season, fertilizer prices are continuing to recover in global markets. This trend is associated with an increase in natural gas prices in Europe and Asia, which has resulted in a localised decrease in the production of nitrogen-based fertilizers. The limitation on exports of phosphate-based fertilizers from China in favour of domestic supplies will also support price trends through the end of the year.” – CEO Andrey Guryev

Nutrien

Who they are: Global nitrogen, phosphate, and potash producer headquartered in Saskatoon, Canada with operations in North and South America and Australia. Production and distribution for over 25 million tonnes of NPK products around the world.

Q3 2021 Earnings Released: November 1, 2021

Highlights:

  • New record for third quarter earnings on high retail revenue growth
    • Cost of goods sold increased by 21% from July 1 to September 30.
    • Freight costs 8% higher
  • Six potash mines are fully operational with record sales expected to rapidly increase production in Q4
    • Competitor mine flooding has limited global production
    • U.S. and European sanctions on Belarus altered global trade flows
    • Global supplies remain tight
  • Expansion projects in nitrogen division wrapping up that will increase production capacity
    • Decarbonization projects underway to curb CO2 emissions
    • High energy prices and low stocks in China and the E.U. will likely reduce operating capacity for nitrogen plants in the region
  • Biggest earnings boost came from phosphate division
    • China’s phosphate and urea export ban until June 2022 will keep competition stiff for outside supplies
    • Reduced U.S. supplies and strong global demand continue to keep global inventories tight

CEO Outlook: “We are raising full-year 2021 adjusted earnings guidance and expect this positive momentum to continue into 2022. We expect to generate significant free cash flow and to meaningfully strengthen our balance sheet through debt reduction, providing flexibility to deliver on future growth opportunities and return cash to shareholders.” – President & CEO Mayo Schmidt

Mosaic

Who they are: Tampa, Florida-based phosphate and potash producer and distributor. Largest U.S. producer of potash and phosphate.

Q3 Earnings Released: November 1, 2021

Highlights:

  • Stronger pricing more than offset lower retail volumes, sending revenues 44% higher
    • Tight inventories, but also reduced production due to expansion projects in Canada
  • Some U.S. phosphate plant outages due to mechanical issues and Hurricane Ida in the Gulf of Mexico have largely been resolved with capacity expected to return by Q4
    • Rising raw materials costs ($5-$10/tonne higher)
    • In China, rising demand for commercial uses for phosphate competes with growing acres
  • Potash plant expansion in Canada came online a month early
    • Average realized prices will be $110-$130/ton higher than in Q3
    • India inventories are 59% lower annually, Chinese inventories down 26%
      • High palm oil prices will be significant growth driver
    • Anticipated slow U.S. and Brazilian acreage growth in 2022
  • 90% of fourth quarter sales are committed and priced
    • Some customers requesting commitments as far ahead as spring 2022 planting
    • Q4 2021 prices expected to rise $55 to $65/ton higher than Q3
  • More capital expenditures to increase capacity
    • Accelerate development at Canadian potash mine
    • Mine extension at Central Florida mine

CEO Outlook: “Mosaic's third quarter results were the strongest in more than a decade, as our business continues to realize the benefits of a favorable market amplified by our transformation efforts. From the acquisition and optimization of Mosaic Fertilizantes to the acceleration of our Esterhazy K3 potash mine and the recent restart of the Colonsay potash mine, Mosaic has evolved into a business that we believe can deliver results throughout the cycle.” – President & CEO Joc O’Rourke

Syngenta

Who they are: Global agricultural inputs company based out of Basel, Switzerland

Q3 Earnings Released: October 28, 2021

Highlights:

  • Global supply chain issues hindered production, procurement, and logistics performance
  • Year-to-date biological sales grew 30% annually
  • The global acreage increase and uptick in regenerative practices drove YTD sales 25% higher
    • YTD earnings up 18% annually
  • Rising grower demand for seed varieties that can withstand turbulent weather conditions while maximizing productivity
  • Energy shortages in China are the latest supply chain headache, with temporary closures to crop protection and nutrition production facilities
    • Higher selling costs and double-digit sales growth thanks to high farm-level revenues have largely offset price increases due to raw materials, logistics, and other operating costs

CFO Outlook: “I’m pleased to see that our teams have achieved double-digit sales growth across all business units. We have been able to address the global supply chain challenges during the quarter and meet the demand of our customers for innovative products.” – CFO Chen Lichtenstein

Hide comments
account-default-image

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish