Fertilizer Oversupply Worries Send CF Industries Tumbling

  • Profit margins slide along with prices for nitrogen fertilizer
  • `Significant availability' and weak demand pressures prices

CF Industries Holding Inc., the largest U.S. producer of nitrogen fertilizer, fell the most in almost four years after posting lower-than-expected third-quarter earnings amid lower prices and concern that the market will be awash with surplus supplies.

The shares tumbled 9.5 percent to $46.84 in New York. After the close of trading on Wednesday, Deerfield, Illinois-based CF reported profit excluding one-time items of 49 cents a share, trailing the 73-cent average estimate of 17 analysts in a Bloomberg survey.

CF prices were pressured by the “significant availability” of nitrogen fertilizer on global markets combined with lower demand. That slashed gross profit in the quarter to 18 percent of sales from 33 percent a year earlier. The company is one of several expanding in the U.S. to take advantage of low-cost natural gas, the main raw material used to make nitrogen-based crop nutrients.

"We remain concerned that rising capacity in addition to a lower global cost curve are lowering the floor for North American nitrogen prices, implying narrower margins for domestic producers going forward," Paul A. Massoud, a Washington-based analyst at Stifel Nicolaus & Co. who recommends holding CF shares, said Wednesday in a note.

In August, CF agreed to pay $5.4 billion for some assets of competitor OCI NV and move its headquarters to the U.K. in a deal that it said will make it the world’s largest producer of nitrogen fertilizer.

CF said in its earnings statement Wednesday that it expects demand for nitrogen fertilizer to increase "slightly" next year. The company forecast North American farmers will plant 2.1 million additional acres of corn.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE