Multiple financial media outlets reported that US President Donald Trump plans to place a 25% tariff on Canadian imports effective Feb. 1. Shares in potash producers Nutrien NTR and Mosaic MOS declined in response to the news.
Why it matters: The United States is Canada’s largest potash export market. The US also produces very little potash, accounting for less than 10% of its need, and instead imports the vast majority from Canada. Should the tariff apply to potash, it would likely send US prices higher.
A 25% tariff could cause farmers to reduce their potash use due to the increased price. This could create a demand shock that could cause the potash market to remain oversupplied and global prices to remain lower for longer.
The bottom line: We maintain our fair value estimates of $70 per share for narrow-moat Nutrien and $40 per share for no-moat Mosaic. As potash is a key nutrient required for crop yield growth, we think US farmers would pay higher costs to apply the fertilizer rather than forgo its use.
We view shares of Nutrien and Mosaic as undervalued, with both stocks trading in 4-star territory at less than 75% of our fair value estimates. We think potash prices will rise in 2025, driving profit growth.We point to a recent potash supply cut from major producer Belarus as the driver for the potash market to move from oversupplied back into balance, sending prices higher. Should US farmers reduce demand, Nutrien and Mosaic may also cut production to offset the demand decline.
Big picture: US tariffs on potash would likely have a large effect on US farmers. However, the US accounts for just 15% of global potash demand. With demand growing in larger markets such as Brazil and China, we see a potential demand shock as less impactful to global potash prices.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.