Growers globally may cut back on their input purchases this year as commodity prices have dropped, a bad sign for fertilizer companies that had a rough 2015.

Fertilizer stocks have plunged in the past year as economic growth in China slowed to 6.9 percent last year, its most leisurely pace since at least 1990. Along with being the world’s second-biggest economy, China is also the world’s largest importer of fertilizer, used in agricultural production to feed its massive population.

U.S. crop prices, responding to the economic slowdown in China, have tumbled. Soybeans on the Chicago Board of Trade, the global benchmark futures price, have dropped 10 percent in the past year and have tumbled by almost a third since January 2014. Corn futures have declined about 2 percent in the past year.

Lower prices for soybeans and corn means farmers globally will have less to spend on inputs, including potash, nitrogen and phosphate fertilizers.

“You’re having to sharpen that pencil pretty good this year” if you’re a grower, says Jason Britt, the president of Central States Commodities in Kansas City, Missouri, who advises producers on how to maximize farm profits. “You’re probably not going to be in the spending mood as much because the bottom line isn’t going to be able to handle it.”

Shares of Potash Corporation of Saskatchewan (ticker: POT), the largest fertilizer company in the world, have lost 55 percent of their value in the past year. Mosaic Co. (MOS) and CF Industries Holdings (CF), both among the 10 largest fertilizer producers, are both down about 51 percent. Potash is used to inject soil with potassium, which boosts soil production.

Fertilizer prices at the end of 2015 fell to the lowest — as a whole — in six years, according to a University of Illinois study.

Anhydrous ammonia dropped to $650 a ton in December, down 11 percent from the same month a year earlier. Diammonium phosphate fell 4.1 percent and potash is projected to decline 14 percent, according to a report by Gary Schnitkey, an Illinois economist. While that’s just a single month, he says, it’s an indication that prices will be lower this year.

“Implied fertilizer costs in December 2015 are lower than in all years since 2009, suggesting that fertilizer costs in 2016 could be lower than in recent years,” Schnitkey says. “Current projections put fertilizer costs in 2016 about $10 per acre lower than in 2015. If fertilizer prices continue to decrease, this cost decrease could become larger.”

Potash Corp. is expected to report fourth-quarter earnings on Thursday. Analysts surveyed by Zacks Investment Research have projected earnings per share at 32 cents, down from 49 cents during the same quarter a year earlier.

The company recently announced the indefinite suspension of its Picadilly, New Brunswick, potash production facility. The company says about 430 people will lose their jobs as Potash attempts to reduce capital expenditures and maintain operational flexibility amid “a challenging macroeconomic backdrop.”

Cost of goods sold will decline by as much as $50 million this year due to the plant’s suspension, and expenses will decline by $50 million in 2016 and a combined $135 million in 2017 and 2018. The plant won’t be shut, instead it will be placed in “care-and-maintenance mode” at a cost of $20 million this year.

While things look grim in 2016, some analysts see upside to fertilizer stocks.

Standpoint Research founder Ronnie Moas says he recently initiated fertilizer producer Agrium (AGU) with a “buy” rating because shares are undervalued. The stock’s decline of almost 20 percent in the past year was unwarranted, and Agrium’s earnings make it an attractive investment, he says.

“There are growth opportunities here,” Moas says. “Things in Australia are going well, margins are rising due to lower gas prices and potash volumes could rise. Plus, capacity is expanding so volumes will go up while capital expenditures will go down. I don’t think the $20 drop in share price was justified.”

AGU stock also has a 4 percent dividend yield and is at 10 times earnings, making it a value.

Still, growers who are seeing their profits decline likely aren’t willing to spend more on fertilizer if they can get away with applying less, says Central States’ Britt, whose family owns a farm in Missouri.

If soybeans were priced at $13 rather than $8.75, producers would no doubt be applying as much fertilizer as possible to maximize yields. This year, however, they’ll have to see definitive proof that the amount they spend on inputs translates into profits.

Farmers won’t be strapped for cash, “but I don’t know if they’re feeling flush enough with cash to buy extra inputs,” Britt says. “Wanting to spend money right now is tough for most of the (growers) I know. If they were feeling more flush, you’re going to say ‘let’s get everything we can out of these (fields).’ It’s like when your portfolio is doing well, it’s ‘let’s drink the good champagne,’ but when your portfolio is off, you order from the other side of the menu.”

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Fertilizer Stocks Face Another Down Year as Use Declines originally appeared on usnews.com