The trade war is heating up, especially between the U.S. and Canada, which is promising to retaliate across multiple fronts. One industry seemingly most at risk from this escalating tit-for-tat war is the agriculture industry, which relies heavily on fertilizer inputs from Canada.
Tariffs threaten fertilizer stocks, particularly potash, by disrupting the industry’s cost structure and demand dynamics. Canada supplies over 80% of the U.S.’s needs and proposed tariffs, such as the 25% duty on Canadian imports, could raise potash prices by over $100 per ton, increasing production costs for fertilizer companies.
No. 2 Canadian potash producer Mosaic (MOS) seemingly faces a dilemma. It can absorb the costs of the tariffs and risk thinner margins or it can pass them onto farmers, potentially reducing demand as fertilizer prices rise.
Retaliatory tariffs from Canada could further harm U.S. agricultural exports, squeezing farmers’ budgets and their ability to buy fertilizers. This dual pressure – higher costs and lower demand – could depress revenues and spark stock price volatility.
Yet the problem may not be as bad for Mosaic as some might believe. In fact, an argument can be made that tariffs are a non-issue for it and with MOS stock down 20% over the past year, now could be an excellent time to buy.
There are several factors that shield Mosaic in the near term that ought to allow it to bounce back strongly. Although tariffs could raise prices, most U.S. farmers likely imported their potash for the current growing season before the recent 25% tariff on Canadian imports – delayed now till April – took effect. With planting cycles already underway, demand for Mosaic’s output remains stable for now.
Additionally, potash prices have dipped below mid-season peaks, with global muriate of potash (MOP) prices hovering around $300 per tonne, down from $450 in 2023. This lower cost allows Mosaic to absorb tariff-related expenses without significantly raising prices, mitigating potential demand drops from cost-sensitive farmers.
Mosaic also possesses operational efficiencies that further support its resilience. For example, the K3 mine at Esterhazy produces nearly 8 million tonnes annually. Mosaic has finally overcome the recurring flooding issues that plagued its older K1 and K2 shafts.
This resolution, completed in recent years, slashes Mosaics unit costs as they were previously inflated by brine management expenses. It ought to enhance profitability even if tariffs nudge raw material prices up. Mosaic’s Canadian production base also means it’s less reliant on U.S. imports, softening the tariff blow compared to pure importers.
Further, export markets like China and India, where potash application lags Western rates – China uses just 40 kilograms per hectare versus 100 kg/ha in the U.S. – offer growth potential. Rising agricultural intensity could lift demand, offsetting domestic pressures.
There is also the potential for electric vehicle batteries using phosphates and potassium compounds to emerge as a novel demand source. With pilot projects hinting at future upside potential, there is a whole new market that could be built, though admittedly it is still nascent and fertilizer sales dwarf any potential contribution.
Still, Mosaic is not completely out of the woods. If the trade differences are not resolved quickly, tariffs could sting later. Retaliatory measures from Canada, a key supplier and Mosaic’s production hub, might disrupt U.S. agricultural exports, squeezing farmers’ budgets and fertilizer purchases by late 2025 or 2026.
The spring and probably summer growing seasons may have been covered by potash imports before the tariffs began, but subsequent crop sowings could be affected. It is a problem delayed, not resolved.
Further, if potash prices rebound or trade tensions escalate, Mosaic’s cost advantages could erode, exposing it to demand volatility. For now, it’s insulated, but the horizon holds risks.
Investors willing to bet on the U.S. and Canada (and the rest of the world) resolving their trade differences sooner rather than later may want to make a bet on MOS stock.
Shares trade at just 11 times next year’s earnings and at a fraction of its sales, well below its historical average over the past decade. It also goes for just a small fraction of its book value and it trades below the cash per share it has in the bank.
If you bought the company today, you would essentially only be paying for its cash reserves and getting its entire operations for free. With the stock down, Mosaic looks poised for a big comeback.
