Nutrien

US President Donald Trump announced on his social media platform the US is working on a deal to purchase potash from Belarus. Shares of potash producers Nutrien and Mosaic fell on the news.

Why it matters: Over 90% of US potash demand comes from imports, the vast majority of which come from Canada. By contrast, less than 5% of potash imports come from Belarus. The two largest Canadian potash producers are Nutrien and Mosaic. If this occurs, we expect a fairly quick trade flow shift in potash. We estimate over 60% of global potash supply is controlled by Nutrien, Mosaic, Belarusian state-owned producer Belaruskali, and Russian state-owned producer Uralkali combined. Belaruskali exporting more to the US would likely mean lower exports to other countries, such as Brazil, India, and China. As a result, we would expect Canpotex, the Nutrien and Mosaic potash export joint venture, to export more volumes to these countries, leading to no net supply changes.

The bottom line: We maintain our USD 80/CAD 112 fair value estimates for narrow-moat Nutrien and our USD 35 fair value estimate for no-moat Mosaic. We view Nutrien shares as fairly valued with the stock trading in 3-star territory and Mosaic as undervalued, with shares in 4-star territory. We do not see any changes in global demand or supply from a US potash import deal with Belarus, so we don't see a major impact on prices, just trade flow shifts. The US has historically purchased potash at spot pricing, in contrast to China and India, who buy potash on a fixed contract price. If the US begins to buy potash at a contract price, it may receive a slightly lower price versus the spot market, but spot and contract prices tend to move together.

We lower our Nutrien fair value estimate to USD 80 from USD 85. The reduction is driven by higher near-term phosphate unit production costs and retail expenses, namely fuel costs, as a result of the Middle East conflict-driven supply shock.

We assume a weighted average cost of capital for Nutrien of around 8%. Our discounted cash flow valuation uses an 8% weighted average cost of capital and a terminal value multiple of 10.0 times enterprise value/EBITDA to value cash flows after our 10-year explicit forecast.

In the retail business, we expect mid-single-digit profit growth on average through 2030, as the company expands stores through small acquisitions and sells a greater proportion of proprietary and private-label products, which carry higher margins.

In 2026, we assume a potash contract price of USD 383 per metric ton. This is the contract price set between India and major potash exporter Belaruskali. We expect Canpotex (Mosaic and Nutrien's potash export joint venture), which sells the majority of potash on spot prices, will see prices around this level in 2026. Potash exports from Russia and Belarus were back to historical levels of exports before the Russia-Ukraine conflict began. Our long-term potash price forecast is in the mid-USD 300-per-metric-ton range. We expect little impact from US tariffs, as potash is currently exempt.

In 2026, we forecast urea prices will average USD 600 per metric ton, over 40% higher than 2025. This is in line with the average through the first seven months of the year based on World Bank data. Prices likely peaked in the early second quarter but have been moderating since as the Middle East supply shock begins to alleviate. Over the long term, CF’s unit costs should remain low relative to other producers globally as natural gas prices fall to our midcycle forecast of USD 3.70 per million British thermal units (Henry Hub) in 2026 real terms. Over the next several years, Nutrien's margins should benefit from increasing volumes and producing an increasing proportion of nitrogen using low-cost North American natural gas.

Given the wide range of long-term fertilizer prices, we have created additional valuation scenarios. In an upside case, we assume fertilizer prices stay higher for longer as strong demand growth requires a higher-cost supply to enter production. In this scenario, our fair value estimate would rise to USD 120 per share.

In a downside case, we assume fertilizer prices rapidly fall and remain below our base-case midcycle forecast amid weakening demand and persistent oversupply. In this scenario, our fair value estimate would fall to USD 40 per share.

We assign Nutrien a Morningstar Economic Moat Rating of narrow due to its cost advantage in potash and nitrogen.

We expect potash to account for over 40% of midcycle profits. Nutrien’s potash mines are located in Canada and sit on the low end of the global cost curve due to favorable geology that results in a lower mining and processing cost versus its peers. Historically, Nutrien’s low-cost potash operation came from legacy PotashCorp, which invested in a new low-cost potash mine before the merger that formed Nutrien. Nutrien’s potash assets from PotashCorp were firmly in the lowest quartile of the global potash cost curve. Since the merger, Nutrien has integrated the PotashCorp and Agrium assets to optimize costs among its mines. This has resulted in Nutrien’s unit production costs sitting in the lowest quartile of the global potash cost curve.

Nutrien’s nitrogen business, which we expect to account for roughly 25% of midcycle profits, also benefits from a low-cost position. In nitrogen, feedstock cost is the most important determinant of a producer’s cost position. Nitrogen is generally made from natural gas, with some Chinese producers also using anthracite coal. Globally, the lowest-cost natural gas is produced in North America and the Middle East. In recent years, natural gas prices have risen in Europe as the EU works to reduce its reliance on Russian natural gas. For nitrogen production, European producers are generally the marginal cost producers due to a higher natural gas cost. Given our outlook for European natural gas prices to remain well above North American natural gas prices, we think this steepening of the cost curve will benefit low-cost North American producers. For Nutrien, 75% of the company’s nitrogen is produced using low-cost North American natural gas, which provides Nutrien with a strong cost-advantaged nitrogen operation. Additionally, the company’s nitrogen assets in Alberta, which account for one-third of production, benefit further from low transportation costs as they serve Alberta and neighboring provinces and states, versus competitors that have to ship nitrogen to the region. When Nutrien was formed, roughly two-thirds of its nitrogen production came from low-cost North American natural gas, but the company has invested in brownfield capacity expansions to increase its proportion of low-cost nitrogen production. Over time, we expect Nutrien’s North American nitrogen production will grow further in capacity and as a percentage of the company’s total production, which should reduce its average unit production costs and strengthen its cost advantage over time. As such, we expect the company to remain a low-cost nitrogen producer.

We don’t think the retail business, which we expect to account for around 30% of Nutrien’s midcycle profits, warrants an economic moat. The retail business buys fertilizers, crop chemicals, seeds, and other merchandise from wholesale producers and sells them to farmers at a slight markup. For us to be confident that this business has a moat, we would need to see a brand intangible asset that leads to the retail business being able to charge higher prices than its competitors or a cost advantage from scale that results in lower costs and higher profits.

As the largest agricultural retailer in North America, Nutrien can offer a better selection of products than regional chain and local co-op competition. That said, we don’t think a better product selection translates into significant pricing power with customers or bargaining power with suppliers due to the commoditized nature of crop inputs. While a better product offering may lead farmers to choose Nutrien over smaller competitors, the lack of pricing power prevents us from awarding the retail business an economic moat based on brand intangibles. The retail business also sells proprietary seed, crop protection, and crop nutrient products, which are higher-margin. However, these products make up just 25% of total retail sales, making them less impactful to the business.

Nutrien has also been investing in its digital retail offerings, including an application by which farmers can plan their crop production. This includes field planning, digital agronomy, carbon credit management, and the ability to purchase supplies. Given that a farmer's field data is contained in the app, we think the digital retail business offers traces of switching costs; farmers are unlikely to switch as the app will become an integral part of their business. However, while the app may increase the likelihood that farmers continue to purchase products from Nutrien, we don't think this will translate into long-lasting pricing power. Additionally, Nutrien should generate a growing proportion of retail revenue from its digital offerings. Over time, this should allow the company to close more brick-and-mortar stores, potentially creating a cost advantage over peers that are exclusively brick-and-mortar. While we think Nutrien has a small scale advantage over its smaller peers, this has not translated into higher profits that we would need to see to be confident the company has a cost advantage. As such, we don’t think the retail business has an economic moat as the business has yet to show maintainable margin improvement. That said, we view the retail business as a steady cost of capital business that should generate returns on invested capital roughly in line with or slightly above the company’s weighted average cost of capital over a cycle.

The phosphate business has a middling position on the cost curve, and as such, we don’t think it warrants an economic moat. However, we expect the business to account for well under 5% of Nutrien's midcycle profits, making this business less important among Nutrien’s four segments.

Declining arable land per person will force growers to be more productive and should drive growth in a variety of crop inputs.

Potash application rates in China and India lag scientifically recommended levels. With these two countries working to secure food supply, increasing potash application is a relatively pain-free way to raise crop yields and food production, which will result in higher demand growth for potash.

Fertilizer prices will rise as demand will outpace supply in the coming years.

Volatile pricing and demand for crop nutrients have characterized Nutrien's business in the past few years, highlighting the cyclical nature of the company's cash flows.

Long-term oversupply threatens to reduce the marginal cost of production in potash and lower long-term prices. This includes BHP's Jansen greenfield project and brownfield expansions from existing producers.

Fertilizer prices will fall over the long term as new low-cost supply enters production. This will weigh on Nutrien's profits.