Please ensure Javascript is enabled for purposes of website accessibility

Why Mosaic Stock Just Dropped 10%

By Rich Smith - May 11, 2020 at 11:25AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

2020's harvest looks great -- and that's bad news for Mosaic?

What happened

Last week, shares of fertilizer giant The Mosaic Company (MOS 0.25%) got a boost when analysts at Scotiabank called a bottom on phosphorus and potassium prices, predicted a 50% profit on the stock, and rated Mosaic shares as outperform.

Today, Mosaic shares are down 10% as of 10:45 a.m. EDT as another, even more famous, analyst decides to take the opposite side of that trade.

Ripe ear of corn in a cornfield

Image source: Getty Images.

So what

In Scotiabank's opinion, phosphorus and potassium are selling for trough-level prices right now. But if markets "stabilize," according to TheFly.com, and prices return to even a bit less than what they were in 2019, Scotiabank thinks Mosaic stock could return to $18 a share -- more than a 50% gain from today's price of less than $11 a share.

But not so fast, says Bank of America, which argues that after an "optimistic start" to the year, price trends in fertilizer have "reversed significantly." As a result, Bank of America's outlook on Mosaic stock went from buy to underperform.

As BofA explains, farmers in the U.S. have planted a record amount of corn -- but demand for corn-derived ethanol to mix with gasoline is falling along with demand for gasoline. At the same time, Brazil is producing record amounts of soybeans.

Now what

That may sound good for agricultural industry companies like Mosaic, but in the perverse economics of the ag industry, good harvests usually mean bad prices for the crops harvested. That means less money for farmers with which to buy fertilizer for next year, and less incentive to buy it as well.

In this environment, Bank of America believes that Mosaic stock will be a money-losing trade, and advises investors to sell it. Right now, it seems investors are going to do just that.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Mosaic Company Stock Quote
The Mosaic Company
MOS
$52.35 (0.25%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.