Fertilizer companies are perhaps one of the greatest enigmas of the investing world. Indeed, not many people are intimately familiar with agricultural stocks in general, let alone fertilizer companies in particular. Asute investors have benefitted from the ongoing precious metals bull market, as with ETF silver products and stocks, but few have caught on to agricultural plays. Ironically, it could be quite beneficial for folks to be a student of such companies. The retail, technology and other companies have, in general struggled to perform in tough economic times. Again, silver ETF funds are thriving, but agricultural companies have done well, regardless of the financial turmoil. For instance, ag-related companies have been profitable in the years throughout the financial crisis years in America.
Fertilizer Companies And The Agindex
People familiar with the investment world are likely familiar with the concept of an index. An index is often at the heart of your favorite exchange traded fund. So, if even behind the scenes, you’ve likely been exposed to an index. Well, there’s an index known as the Agindex that is comprised of twenty-one different companies in the agricultural realm in one way, shape, or form. Amazingly, a study revealed that, through the years of 2007 to the end of the first quarter of 2001, the market value of the Agindex went up 8.6% annually. By the same token, the exact same period of time generated an average decline of 2.7% per year for companies in the S&P 500.
Those with a passing familiarity with brand-name companies may know some of the Agindex companies. By way of example, you’ll find equipment maker Deere & Company as well as seed and chemical giant Monsanto. Actual fertilizer companies, like Agrium, are also included.
Fertilizer Companies Benefit From Higher Prices And Relentless Demand
Fertilizers companies stand to perform quite well for a number of reasons. Staple crop prices, for items such as soybeans, corn, and other key items are very high. Economic increase in places such as India and China have led to new levels of purchasing these staples. And yet the United States continues to place high demand on corn for both ethanol and livestock feed. The increased demand chews into stockpiles and prices go up. At the end of the day, this all translates to greater earnings for farmers. Not surprisingly, farmers look for shortcuts when margins are tight. And stringent credit guidelines can make it difficult to get the up front cash to improve the soils.
But eras of prosperity allow them to liberally buy fertilizer products in more of an ideal fashion. And the need to boost yields makes fertilizer a safe bet. On top of all that, corn is among the most intense fertilizer consumers of all crops. Additional acreage in corn takes demand for vital nutrients higher and higher. Fertilizer companies, in turn, are beneficiaries. And prudent investors are the end of the line beneficiaries. Indeed, of all the companies in the index, the fertilizer makers did the best. During this analyzed period of just over four years, the fertilizer companies better than double in market value.
Fertilizer Companies – Pay Me Now Or Pay Me Later!
Fertilizer companies can also stand to benefit from pent up needs. See, whenever farmers have trimmed costs by skipping fertilizer, they generally just defer purchasing these soil enhancers until a later date. In other words, they are not necessarily skipping fertilizer purchases, but rather accumulating them. Passing on improving the soil this year merely means that it will take that much more to restore it next year. So fertilizer firms could see a windfall in sales. From another angle, bear in mind that farmers are also unlikely to delay fertilizing as crop prices rise too. The reality is that high prices mean that farmers cannot afford to skip fertilizing. The decrease yield can cost them much more than the money not spent on fertilizer.
Fertilizer Companies And The Acquisition & Merger Frenzy
Investors looking to profit from solid fertilizer opportunities need to be aware of the merger and takeover landscape. 2010 was a year that was quite active in this regard. Consolidation of the industry is all but certain to continue. Farmers and dealers are concerned that this could lead to higher prices. The fact of the matter is that higher prices are not only logical, but also seemingly sustainable. On the one hand, the rising demand should causes prices to increase a bit to keep demand in check. On the other hand, as noted, the handsome grain and other agricultural commodity prices suggest that growers ought to be able to absorb the higher fertilizer costs.
It is important to stay abreast of the fertilizer industry mergers and takeovers, as it can be hard to keep track of who’s who in the zoo. For example, you might own (or be watching) a company like Anglo Potash in Canada. The next thing you know, Australian mining giant BHP Billiton has taken over. BHP also took out Athabasca, another Canadian company with massive potash potential. BHP had its eyes on Potash Corporation of Saskatchewan. However, the forty billion dollar deal was tubed, apparently because of stringent requirements the Canadian government imposed.
BHP is not the only enormous company on the prowl. Vale is a Brazilian company best known as the largest iron ore producer in the entire world. The company agreed to pay $3,800,000,000 for the fertilizer assets of Bunge. In the deal, Vale also ended up with more than 43% of Fosfertil, which was Brazil’s primary provider of raw materials for fertilizer products. At this point, the company has potassium mining in progress and intends to increase Peruvian phosphate production by about half. Potash acquisitions giving potash exposure in both Canada and Argentina all help contribute to the company’s plans to be among the top fertilizer producers this decade.
The corporate merger activity among fertilizer companies is not unknown to Russian pioneers either. There, potash companies Silvinit and Uralkali are looking at a merger. This is a significant event, as Russia is the second largest producer of potash in the world, lagging behind only Canada. Nitrogen is a key ingredient for fertilizer purposes, and even it is the subject of corporate action. The largest nitrogen producer in the world is Yara International. The company has been gobbling up companies and putting together joint ventures all over the world. Yara has partial interests in Russian fertilizer companies, like OAO Minudobreniva. It has widespread tentacles in other venues, like Australia ammonia plants, fertilizer companies in Finish, and oil in Lybia.