Fertilizer Maker To Report, Stock Soars On Hormuz Closure
Global fertilizer giant CF IndustriesCF has successfully raised prices amid the supply shortages caused by the closure of the Strait of Hormuz. On Wednesday, it will report earnings.
Shares fell about 5% shortly after the open, according to MarketSurge.
Fertilizer Prices Soar
CF Industries is the world's largest ammonia producer and specializes in nitrogen-based fertilizers. The Strait of Hormuz is a critical shipping lane for one of the critical components in such nitrogen fertilizers, urea. When Iran shut the strait during the ongoing war with the U.S., it limited global supplies of - and raised prices for - urea.
CF Industries itself does not source products through the Strait of Hormuz. But Department of Agriculture officials report that the shutdown shorted U.S. farmers of 20% of the fertilizer supply necessary for spring planting, according to AgWeb farm journal.
Prices for urea, already high before the shutdown of the Strait in March, have doubled since December, AgWeb reports. While CF Industries' costs were essentially unaffected, it was still able to hike its prices.
As a result, the stock rose more than 30% in March, the month the war started. The stock peaked, up 84% for the year, on March 30. Shares have since pulled back, consolidating along support at their 10-week moving average.
Still holding a 58% year-to-date gain, shares are poised for a possible rebound from 10-week support.
On Wednesday's earnings call, investors will try to parse the durability of CF Industries' price increases.
Analysts expect revenue to rise about 10.5% this quarter to $1.839 billion, according to FactSet. Because much of the revenue gains are coming from price increases, Wall Street expects profits to grow faster than the topline. Net income is forecast to grow 26.6% to $395 million and free cash flow from operations is projected to increase 27.1% to $745 million.
How Long Will High Fertilizer Prices Last?
Despite the promising estimates, an April Morgan Stanley report saw the price gains as already valued into CF Industries' stock.
The bank anticipates a wide range of possibilities for the global fertilizer market because of the still-uncertain outcomes of the U.S. and Iran's ceasefire negotiations.
"In all cases, we expect continued volatility in nitrogen share prices as the fact set continues to evolve," Morgan Stanley analyst Vincent Andrews wrote.
In addition to the sporadic talks between the U.S. and Iran, there are several other industry-specific factors that could alter the global supply of nitrogen and CF Industries' pricing power. One outstanding question is whether China - which has banned fertilizer exports due to the Iran war - would eventually release its own reserves of urea to the global market, according to Andrews.
"We think (China's exports) could surprise in either direction: they could fall to zero in the case of war escalation, or come in well in excess of last year's 5.6 metric tons if China releases some of its substantial excess inventory as part of a broader trade deal/olive branch with the U.S. and others," he wrote.
The other major uncertainty was how exactly farmers across the world would react. In the U.S., they might delay nitrogen purchases usually made in the back half of the year into early 2027. Meanwhile, South American farmers could opt to replace corn with soy crops, which require less nitrogen to grow, according to Andrews.
