Retail Pricing Environment for Agrium Remains Weak
Agrium's 1Q16 Is Better Than Analysts' Estimates: What's Next?
Retail pricing
Previously in this series, we saw that shipments for Agrium’s (AGU) overall Retail segment have increased YoY (year-over-year). In this part, we’ll look at the pricing environment for the Retail segment. Prices for agricultural fertilizer has been declining over the past few years as a result of lower crop commodity prices.
Average selling prices
The average selling prices for both the North American and international markets declined in 1Q16 by as much as 11% YoY (year-over-year), from $483 per metric ton to $428 per metric ton. The average selling prices in the domestic margin declined by 11.9%, from $511 per metric ton in 1Q15 to $450 per metric ton in 1Q16. The average selling price in the international market declined by 10% from $394 per metric ton to $354 per metric ton.
Why prices declined
The company stated that it saw a decline in potash prices primarily as a result of imports that were higher than average. Nitrogen prices continue to fall due to lower pricing for input costs such as coal in China.
Major companies such as PotashCorp (POT), Mosaic (MOS), CF Industries (CF), and Intrepid Potash (IPI) are all impacted heavily due to the pricing environment.
Investors can consider a broader portfolio such as the Materials Select Sector SPDR ETF (XLB), which invests about 12% in the agricultural chemicals business.
The pricing environment also impacts Agrium’s Wholesale segment. But before we look at the Wholesale segment, let’s see how the Retail segment’s gross margins performed in 1Q16.
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