By Elizabeth Elkin and Breanna Bradham

North America’s top fertilizer producers are posting their best stock gains in years, with CF Industries Holdings Inc. leading in an industry that benefited from record high prices.

CF Industries, a major player in nitrogen fertilizer, has soared 67% in 2021 through last week — on pace for its best year since 2009 — making the U.S. company the second-best performer on Standard & Poor’s 500 materials index this year.  Mosaic Co. is also having its best year since 2009, with its stock climbing 58%, while shares of Canadian rival Nutrien Ltd. have gained 49%. All three, along with the broader stock market, slipped early Monday.  

Soaring demand for the nutrients key to boosting farmers’ crop yields has helped these global fertilizer giants. Prices for all three major crop nutrients – nitrogen, phosphate and potash – have been on the rise as farmers encouraged by high crop prices ramped up fertilizer purchases earlier in the year. The industry also faced challenges that crimped output and exacerbated prices for crop inputs, including unexpected plant closures, energy shortages in Europe and China and export halts by major countries.

CF Industries, unlike its North American peers, has one advantage that appears to have struck a chord with investors: nitrogen.

Nitrogen is a nutrient most corn farmers have to apply every year, which provides a consistent market regardless of pricing. That proved to be an advantage for CF Industries earlier in the year when natural gas prices skyrocketed in Europe, driving up the costs of making nitrogen fertilizer for European producers. While CF Industries, based in Deerfield, Illinois, closed two plants in Europe due to the high gas costs, it was able to take advantage of a lower cost in the U.S. to produce nutrients and sell at a premium.

“They take advantage of the low cost of energy in their region, which happens to be North America, versus the high cost of energy that is used to produce the marginal product that customers are willing to pay for,” Scotiabank analyst Ben Isaacson said.

The other North American fertilizer producers have also fared well from supply constraints.

Mosaic deals in potash and phosphate and both have seen prices rise over the last year, with phosphate’s gain fueled after the world’s top exporter, China, faced shutdowns due to Covid-19 last year. This year, sanctions on Belarus, a major producer, also helped boost potash prices for Tampa, Florida-based Mosaic as well as Nutrien, which gets two-thirds of its gross profit from its retail segment during normal conditions.

“Mosaic and Nutrien, their potash and phosphate costs tend to be pretty stable from year to year, since they’re mining it — it’s totally an in-house operation,”  Seth Goldstein, an analyst at Morningstar Investment Service said in an interview. “There’s not much they can do to materially change their cost of production every year, so then their profits are almost entirely based on the market prices.”

Wall Street analysts think these fertilizer giants have more room to run next year. The average 12-month price targets for CF Industries is at an 8.1% premium to Friday’s closing share price, while Mosaic is at a 26% premium and Nutrien is 14%.

To contact the authors of this story:

Elizabeth Elkin in New York at [email protected]

Breanna Bradham in New York at [email protected]

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