Nutrien Earnings: Shares Dive on Falling Fertilizer Prices and Profits

We maintain our $70 per share fair value estimate for Nutrien NTR following the company’s second-quarter earnings. Our fair value for the Canadian shares falls to CAD 93 from CAD 94 due to foreign-exchange fluctuations. Our narrow moat rating is unchanged.

Nutrien shares were down in response to management’s guidance cut. At current prices, we view the stock as fairly valued, with shares trading just below our fair value estimate. As such, we recommend investors wait for a larger pullback and for shares to offer a larger margin of safety before we would recommend an entry point in the name.

Nutrien’s results reflect continued lower fertilizer prices. Potash, nitrogen, and phosphate prices have all fallen significantly since hitting all-time highs last year as a result of the supply shock from the Russia-Ukraine conflict that sharply reduced fertilizer exports from Russia as well as Russian natural gas exports to Europe (where natural gas-based producers have historically set the marginal cost of production). In response to record prices, farmers applied significantly less potash and phosphate to their fields and demand has remained below 2021 levels even as prices have fallen, which has caused prices to fall nearly as fast as they rose.

In potash, prices are now near our midcycle forecast of $310 per metric ton (in 2023 real terms), as the contract between China and Canpotex (Nutrien and Mosaic’s export joint venture) was set at $307. In response, we expect potash demand will return to more normal levels in the coming years, supporting current prices.

In nitrogen, prices now sell well below our $350 per metric ton long-term urea price forecast, and we reduced our nitrogen price forecast in 2023. Separately, as a result of a mild winter, North American natural gas prices, Nutrien’s largest input cost, have fallen and are now well below our $3.30 per million British thermal unit long-term forecast. Accordingly, we reduced our near-term unit production cost assumptions.