For Agriculture Inputs, We See Small Impact from Tariffs, as Costs Are Largely Passed Along to Farmers

US President Donald Trump announced sweeping tariffs, with a minimum 10% tariff on all US imports and higher rates for select countries. Shares of seed and crop chemicals producers fell in after-hours trading on the news, while fertilizer producer shares were up.

Why it matters: Tariffs will raise the cost of importing products into the US. Many agriculture input products are produced domestically, but some crop chemicals and chemical inputs are made in China and will be subject to a 54% tariff. The previously announced 10% tariff on potash will be maintained.

• We think the tariffs will largely be passed along to farmers in the form of price increases. However, with the planting season underway and a lot of agriculture input products already imported into the US, we don’t see a large immediate impact.
• Over the long term, we expect a larger impact on crop chemicals, particularly generic products that are imported. For potash, we expect a small impact, as the essential nutrient is needed to boost crop yields.

The bottom line: We maintain our $70/CAD 99 fair value estimate for narrow-moat Nutrien NTR, $35 fair value estimate for no-moat Mosaic MOS, $85 fair value estimate for narrow-moat CF Industries CF, $70 fair value estimate for wide-moat Corteva CTVA, and $95 fair value estimate for narrow-moat FMC FMC.

• Our top picks are Nutrien and Corteva, which both trade in 4-star territory. Nutrien’s low-cost potash production should support profit growth, and we see minimal impact from tariffs.
• Corteva’s strong pipeline should drive pricing power and strong profit growth as new products are commercialized. Corteva should also see little impact from tariffs. The seed business and its two largest crop protection products are produced domestically, leading to less companywide impact.