Today, fertilizer stocks are among the top stocks many investors are watching. Wait, fertilizer stocks?
That’s right. These commodity producers of nutrient products from potash to nitrogen and phosphorous are getting hit hard. Companies such as CF Industries (NYSE:CF), Nutrien (NYSE:NTR), ICL Group (NYSE:ICL) and Yara International (OTCMKTS:YARIY) are each trending in the wrong direction today.
Mostly a low-volatility sector, some significant volatility is beginning to hit these companies, for various reasons. The top reason investors appear to be becoming concerned with this sector is the ongoing Russia-Ukraine conflict.
Therefore, let’s dive into the specifics of what investors are watching today.
Why Are Fertilizer Stocks Lagging Today?
Indeed, there are a number of key factors experts have noted that are responsible for decreased interest in fertilizer stocks right now.
Among the key drivers of this bearish sentiment is higher energy prices. Natural gas is used in the production of fertilizers and is near multi-year highs. Until gas prices come down, particularly in the U.S., key fertilizer companies are going to be hit by higher input costs. These costs are likely to put downside pressure on margins.
Secondly, sanctions generally restrict the availability of fertilizer supplies, particularly coming out of Russia. Increasing seasonal demand could push prices higher, reducing demand amid margin constraints.
Finally, Russia and China are both big importers of fertilizer. With reverse sanctions being imposed on imports, U.S. and European producers of agricultural inputs could be hit hard. The newfound supply and demand fundamentals of this space are growing increasingly bearish, despite higher prices.
As we’re seeing in the fertilizer market, higher commodity prices aren’t always good. If supply and demand fundamentals weaken, so too does the value proposition for fertilizer stocks. Accordingly, investors appear to be taking a bearish view on this sector as a whole for these reasons.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.