The Zacks Fertilizers industry is poised to gain on favorable demand fundamentals for major crop nutrients, including phosphate and potash. The underlying strength of the agricultural market and attractive farm economics are spurring demand for fertilizers globally.
Industry players such as CF Industries Holdings, Inc. CF, The Mosaic Company MOS and Yara International ASA YARIY are set to benefit from higher demand for fertilizers in major markets. While weak year-over-year fertilizer prices pose headwinds, factors like healthy farm income and expectations of increased planted acres are expected to drive crop nutrient demand globally in the near term.
About the Industry
The Zacks Fertilizers industry comprises producers, distributors and marketers of crop nutrients for the global agriculture industry. Companies in this space offer nutrients such as phosphates (including diammonium phosphate, monoammonium phosphate and phosphoric acid), potash and nitrogen (including urea, ammonia and urea ammonium nitrate) fertilizers. They also provide other nitrogen products to help farmers maximize crop yield. Crop nutrients are essential to drive agricultural productivity and boost the natural fertility of the soil. Demand for these nutrients is being supported by the need to increase the production of grains to address rising food consumption globally. 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 global population drives the consumption of fertilizers.
What's Shaping the Future of the Fertilizers Industry?
Healthy Demand for Crop Nutrients: The companies in the fertilizers space are well-placed to benefit from healthy global demand for major crop nutrients. In the United States, healthy farm profits and high levels of planted acreage are expected to drive demand for fertilizers. Strong farmer economics should support demand in major markets such as Brazil and India. The phosphate market is benefiting from higher global demand and low producer and channel inventories. Strong grower economics, improved affordability and low inventory levels are also expected to drive potash demand globally. Demand for nitrogen fertilizer remains healthy in major markets, backed by significant agricultural demand and recovering industrial demand. High levels of corn planted acres and low nitrogen channel inventories should drive demand for nitrogen in North America. Also, demand for urea imports in Brazil and India remains favorable.
Agricultural Fundamentals Remain Favorable: Fundamentals in the broader agriculture space remain positive, given the sustained rise in food demand globally. While prices of corn, soybean and wheat have declined from the multi-year highs reached in 2022, they remain supportive. Farmer economics also remain attractive in most global growing regions due to strong crop demand. Per the U.S. Department of Agriculture (USDA), net farm income is projected to climb 29.5% year over year to $180.1 billion this year, driven by a significant increase in government payments. USDA forecasts direct government payments at $42.4 billion in 2025, a 354.5% surge from 2024. Solid farm income is likely to drive farmers’ spending on crop nutrients this year. Expectations of high levels of planted corn and soybean acres globally also suggest a pickup in fertilizer demand.
Soft Fertilizer Prices to Weigh on Margins: Prices of phosphate and potash have retreated since the back half of 2022 from their peak levels attained in the first half, riding on the impacts of the Russia-Ukraine war and disruptions due to the sanctions in Belarus. Global nitrogen prices have also declined since the beginning of 2023. Higher global supply, driven by increased global operating rates due to lower global energy costs, has resulted in a decline in nitrogen prices. While fertilizer prices have increased modestly of late, weaker year-over-year prices are likely to dent the profitability of companies in this space over the near term.
Zacks Industry Rank Reflects Upbeat Prospects
The Zacks Fertilizers industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #33, which places it in the top 13% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates a bright near term. 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.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms S&P 500
The Zacks Fertilizers industry has underperformed the Zacks S&P 500 composite while topping the broader Zacks Basic Materials sector over the past year.
The industry has gained 7.5% over this period against the S&P 500’s rise of 8.3% and the broader sector’s decline of 10%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing fertilizer stocks, the industry is currently trading at 12.78X compared with the S&P 500’s 15.9X and the sector’s 12.09X.
In the past five years, the industry has traded as high as 18.05X and as low as 4.55X, with a median of 10.7X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
3 Fertilizer Stocks to Keep a Close Eye on
Yara International: Norway-based Yara International is a leading global producer and supplier of mineral fertilizers. It has industry-leading experience in ammonia development, production, operations and distribution. A favorable nitrogen demand environment bodes well for YARIY. Lower energy costs are also supporting its margins. Cost reductions and actions to strengthen the balance sheet are expected to boost the company’s profitability and cash flows. YARIY also remains focused on rewarding its shareholders by leveraging strong cash flows.
Yara International carries a Zacks Rank #1 (Strong Buy). It has an expected earnings growth rate of 93.1% for 2025. YARIY’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 46.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: YARIY
CF Industries: Illinois-based CF Industries is a leading global manufacturer of nitrogen and hydrogen products for fertilizer, clean energy, emissions reduction and other industrial applications. It is gaining from higher nitrogen fertilizer demand in the major markets. CF is seeing higher nitrogen demand for industrial uses in North America. Lower natural gas prices are also acting in the company’s favor. CF remains committed to boosting shareholders’ value by leveraging strong cash flows.
CF Industries currently carries a Zacks Rank #3 (Hold). CF’s earnings beat the Zacks Consensus Estimate in each of the last four quarters at an average of 32%. CF also has an expected long-term earnings per share growth rate of 37%.
Price and Consensus: CF
Mosaic: Florida-based Mosaic is a leading producer and marketer of concentrated phosphate and potash for the global agriculture industry. MOS is benefiting from the strong demand for phosphate and potash, aided by favorable agricultural conditions. The company is also taking measures to cut costs in a still-challenging operating environment. Its actions to improve the operating cost structure through transformation plans are expected to boost profitability. MOS remains on track with its cost-reduction plan, which is expected to drive $150 million in run-rate cost reductions by the end of 2025. MOS also remains committed to carrying out investments with high returns and moderate capital expenditures.
Mosaic, carrying a Zacks Rank #3, has an expected earnings growth rate of 11.1% for 2025. The Zacks Consensus Estimate for 2025 earnings for MOS has moved up 4.3% in the past 60 days.
Price and Consensus: MOS
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