Nonstopdrivel
15 years ago

MARCH 9, 2010
How to Profit From the Fertilizer Wars
 
BY PETER KRAUTH, Contributing Editor, Money Morning

There's nothing like scarcity and supply disruptions to fuel violent price spikes. And there's nothing like the basic human needs for food and water to light that fuse.

Today's world food supplies run on razor-thin inventories.

While the food riots of 2008 have all but disappeared from our short-term memories, the threat of them returning grows stronger with every passing day.

According to the World Bank, food prices increased 83% between February 2005 and February 2008. In April 2008, when the United Nation's World Food Programme warned that a "silent tsunami" of hunger was sweeping the globe because of soaring food prices, it was more than just a clever sound bite tossed off by a bureaucrat: It was a warning that the world's poor were being squeezed as increasingly higher portions of their family incomes were being spent on the food they required for their very survival.

Improved fertilizers will be a key to the solution of this problem. And they won't just promote crop growth - savvy investors who fertilize their portfolios will be pleased with their profit harvest.

Let me explain ...

Although commodities - including the grains - entered a secular bull market about nine years ago, if you adjust for inflation back to 1980, soybeans, corn and wheat still remain among the cheapest natural resources around... for now.

More recently, the International Grains Council warned us that global grain supplies are expected to fall by 4.3% in the 2009-2010 growing season.

Right now, sugar prices are near their highest levels in 28 years, and corn prices are being bolstered by rising Asian consumption and supply pinching drought. The Philippines are about to become a net rice importer for the first time in 20 years.

And don't forget about China, which will once again prove to be the "swing vote" in the marketplace supply and demand tug-of-war that establishes agricultural inventories and prices.

[img_r]http://moneymorning.com/images2/commodities-03092010.gif[/img_r]Over the past 10 years, China has transitioned from a net producer of certain grains into a net importer. For instance, it's now importing corn for the first time in six years. That's a far cry from 2003, when the Red Dragon was the leading exporter of grains in Asia. The first four months of 2009 saw China's soybean imports rise a whopping 36%, helping push and sustain the price of that commodity to multi-year highs.

But if we look further out at 10-year projections, the supply/demand picture gets even more alarming. According to the U.S. Department of Agriculture's own forecast, "long-term growth in global demand for agricultural products - in combination with the continued presence of U.S. ethanol demand in the corn sector and EU biodiesel demand for vegetable oils - holds prices for corn, oilseeds, and many other crops well above their historical levels."

Meanwhile, current biofuel targets from the developed nations - as well as Brazil, China, and India - could divert more than 10% of the world's total arable land from food production into growth of crops for biofuels. Last year, for instance, more than 25% of the total U.S. grain crop was converted into ethanol to serve as fuel.

This new-and-growing challenge for the U.S. farming sector - which has already been watching arable land give way to development - is no small problem. The American Farmland Trust recently warned that here in the United States, every 60 seconds, two acres of agricultural land is lost to development. The Earth Policy Institute indicates that the U.S. area devoted to roads and parking lots covers roughly 16 million hectares, nearly as much as the 20 million hectares devoted to growing American wheat.

This growing scarcity of arable land isn't just a U.S. problem. This past June, China decided to halt a reforestation program for fears the initiative could help the country run short of marginal farmland needed to keep its people fed.

In less-developed nations, productivity is a major issue. That's because their farming methods only achieve a meager 10% of the industrialized world's productivity levels. And yet, developing nations are the main drivers of food-demand growth.

So what's the solution to the world's ongoing food shortages and impending crises?

Like anything this complex and geopolitically charged, there's no single answer.

But one thing is certain - fertilizers will have the biggest impact.

Fertilizers: Ag Panacea/Investor-Profit Catalyst

Until recently, most investors probably thought the word "potash" referred to something that got consumed at a college frat party.

The fact is, potash is a key agricultural ingredient - the unsung hero of food production.

Potash fertilizers increase crop yields, plants' water retention, and disease resistance.

And this staple of the food-growing process is about to move back into the limelight, along with agricultural resources.

Last fall I attended the Second McGill Conference on Global Food Security. One of the panelists, Dr. Hafez Ghanem, assistant director-general of the UN's Food and Agriculture Organization, said the world's population is likely to reach 9 billion people by 2050 - an increase of 2.3 billion. Most of that population growth will be centered on developing nations. The countries most successful at reducing hunger will do so via increased agriculture investments.

But to meet this expanding demand, we'll need to increase current food production by 70% from current levels - and that's before we redirect any agricultural production toward biofuels.

It sounds like a major challenge. But as most longtime investors understand, challenges breed opportunity.

It's estimated that fertilizers have such an impact on agricultural productivity that they're actually responsible for 40% to 60% of the global food supply.

Nutrients such as nitrogen, phosphorus and potassium are embedded in fertilizers. They replenish soils in harvest and add nutritional value to food - to such a degree that farmers can't do without them, at least not for long. Each year, the United States exports roughly 80 million tons of grain that contains nitrogen, phosphorus, and potassium. The only way to replenish these nutrients in the soil - ensuring its fertility - is to employ fertilizers, making them essential.

As countries modernize and their populations become increasingly affluent, they also tend to eat better-quality foods. That means that their diets start to include more fresh fruits and vegetables, which require growers to employ increasingly larger quantities of fertilizers. In fact, the International Fertilizer Development Center says that "no country has been able to expand agricultural growth rates and eliminate hunger without increasing fertilizer use."

The bottom line: Potash is back

"Fertilizer Wars"

Potash fertilizer prices have had a healthy run, climbing from 2003-2004 levels of about $100 per ton to eventually peak at roughly $1,000 a ton in 2008, when numerous crop prices were hitting all-time highs. But like most other basic foodstuffs, potash prices have fallen back to earth.

Last December, the Belarusian Potash Co. struck a deal with China at $350 a ton, setting a what some analysts described as a "price floor" for potash.

As it turns out, those analysts may have been right. In mid-February, North American manufacturers' potash inventories were reported to have fallen sharply in January. With spring planting around the corner, and overseas sales on the rise, potash dealers stepped up their supply restocking efforts. Farmers had cut back on consumption as a reaction to higher prices. But that hurt crop yields and crop quality. After nearly a full year of fertilizer underutilization, robust demand is returning.

Just recently, Canpotex - the fertilizer-sale consortium for North America's largest exporters [Potash Corp. (NYSE: POT), Agrium Inc. (NYSE: AGU), and The Mosaic Co. (NYSE: MOS)] - inked a deal with India at $370 per ton, fueling speculation that the previous $350 a ton European-Chinese deal marked a new bottom.

Not surprisingly, merger-and-acquisition (M&A) activity in this sector has been sizzling - so much so that some analysts are referring to the wheeling and dealing as the "fertilizer wars." CF Industries (NYSE: CF) has made a $4.1 billion bid for Terra Industries Inc. (NYSE: TRA). Agrium has been hunting CF for nearly a year. Recently, Vale (NYSE: VALE) acquired Bunge's Brazilian fertilizer operations.

And in the past several weeks, BHP Billiton Ltd. (NYSE ADR: BHP), the world's largest mining concern, bought Athabasca Potash Inc. (PINK: ABHPF). But considering BHP's desire to be either No. 1 or No. 2 in whichever fields it chooses to play in, the odds are good that it has one of the big North American potash producers within its sights.

Retail investors should do the same.

As the global economy normalizes and food demand rises, look for a supply shock to hit the grains complex - and, by direct extension, the potash-fertilizer market, too.

Remember, the food shortages that led to riots have not gone away. They're on hiatus -but only temporarily - and could potentially erupt anew at any time.

In my view, you still have a chance to get in near the ground floor in the last sector to join the secular-commodities smorgasbord.

Potash, Agrium or Mosaic could serve as the dessert to the ongoing commodities banquet.


UserPostedImage
Pack93z
15 years ago
Damn it Obama... now your causing a food shortage. :pirate:
"The oranges are dry; the apples are mealy; and the papayas... I don't know what's going on with the papayas!"
Fan Shout
Martha Careful (3h) : ditto, I wish nothing but the best for AJ Diilan and Josh Myers. and yes dfosterf, you are correct
Mucky Tundra (4h) : Love AJ but it was time to move on. Also, gonna be interesting to see how he does behind Phillys oline
Mucky Tundra (4h) : Josh Myers to the Jets one a one year, 3.5 million dollar deal
dfosterf (5h) : Wish nothing but the best for AJ Dillon!
Zero2Cool (5h) : Eagles landed AJ Dillon
wpr (5h) : The Packers did not tender restricted free agent John FitzPatrick. The tight end played in nine games after signing with Green Bay
wpr (5h) : The Eagles are signing former Packers running back AJ Dillon, a league source confirms.
Zero2Cool (5h) : Might be waiting for the right place, or right cash, or both
dhazer (6h) : I can't believe Chubb is still a free agent why wouldnt someone take a chance on him he is a stud with stuff to prove
Zero2Cool (7h) : I wanna find it too
Zero2Cool (7h) : if they find it, i wanna know how !!
dfosterf (7h) : According to the OTC cap figures, Miami has one minute to find 10.3 million in cap space lol
Zero2Cool (8h) : lol nice one
dfosterf (9h) : MVS to the Seahawks. I know Martha is relieved, lol
Zero2Cool (9h) : Pelissero: Cooper Kupp to be released by the Rams.
dfosterf (10h) : OTC has increased Packers cap room to over 32 mil
Martha Careful (12h) : RIP Junior Bridgeman. An excellent businessman and NBA er
Zero2Cool (14h) : It's better to have $17m to use on players who will be on the field. That's why trade/release is talked
Zero2Cool (14h) : post june is $7m cap hit with $17m saving
Zero2Cool (14h) : oops meant $10m cap hit
Zero2Cool (14h) : And pre june is $10m savings
Zero2Cool (14h) : Can't make him play.
dhazer (14h) : I am curious why the big need to release Jaire, we have 29 million cap space we arent spending and would only gain $6 million/ make him play
Zero2Cool (15h) : Joey Bosa signed with Bills?
dfosterf (15h) : What they are offering is a left over case of Leinies from the Chippewa Falls plant
Zero2Cool (15h) : 27, 59, 91, 129 gets you Jaire and our 3rd
Zero2Cool (15h) : they give us those five, or even first four, they can have Jaire.
Zero2Cool (15h) : 27, 59, 91, 129 and 136 are only ones worth having of theirs.
dfosterf (15h) : What they don't have is cap space, at least presently at 5.6 mil
dfosterf (15h) : Poor bastards only have 11
Zero2Cool (16h) : Ravens ain't got crap for picks.
Zero2Cool (16h) : Aaron Rodgers is choosing between Steelers and Giants. The Vikings are officially out on him, per RapSheet
dfosterf (16h) : Current cap space 29.6 million.
dfosterf (16h) : Hobbs 2025 cap hit just under 6 million. Banks 2025 cap hit just over 9 million
Mucky Tundra (23h) : beast, this is news to me! Tell me more about these, "draft picks." They seem mighty mysterious! 😉
beast (12-Mar) : Yes, the Ravens have draft picks
dfosterf (12-Mar) : Good luck to him.
Zero2Cool (12-Mar) : Eric Stokes signs with Raiders
Martha Careful (11-Mar) : Tyler Linderbaum C
Mucky Tundra (11-Mar) : Cap space?
Zero2Cool (11-Mar) : Do Ravens have anything we'd even entertain to have?
Mucky Tundra (11-Mar) : I've seen trade ideas of Jaire going to the Ravens all offseason
beast (11-Mar) : A probably false rumor is suggesting CB Jaire Alexander is being traded to the Ravens, again probably false
beast (11-Mar) : Commanders might have a dominant offense the next 3 years at least
Zero2Cool (11-Mar) : San Francisco 49ers announced they have released DL Leonard Floyd.
Mucky Tundra (11-Mar) : Er getting traded twice like that
Mucky Tundra (11-Mar) : Huh, LT Laremy Tunsil traded from Houston to Washington. Never heard of a top OT getting traded in his career like that
Martha Careful (11-Mar) : Minnesota Vikings cornerback Byron Murphy Jr. is returning on a three-year, $66 million deal
Zero2Cool (11-Mar) : Damn
Martha Careful (11-Mar) : Saints are re-signing DE Chase Young to a three-year, $51 million deal worth up to $57 million.
Please sign in to use Fan Shout
2024 Packers Schedule
Friday, Sep 6 @ 7:15 PM
Eagles
Sunday, Sep 15 @ 12:00 PM
COLTS
Sunday, Sep 22 @ 12:00 PM
Titans
Sunday, Sep 29 @ 12:00 PM
VIKINGS
Sunday, Oct 6 @ 3:25 PM
Rams
Sunday, Oct 13 @ 12:00 PM
CARDINALS
Sunday, Oct 20 @ 12:00 PM
TEXANS
Sunday, Oct 27 @ 12:00 PM
Jaguars
Sunday, Nov 3 @ 3:25 PM
LIONS
Sunday, Nov 17 @ 12:00 PM
Bears
Sunday, Nov 24 @ 3:25 PM
49ERS
Thursday, Nov 28 @ 7:20 PM
DOLPHINS
Thursday, Dec 5 @ 7:15 PM
Lions
Sunday, Dec 15 @ 7:20 PM
Seahawks
Monday, Dec 23 @ 7:15 PM
SAINTS
Sunday, Dec 29 @ 3:25 PM
Vikings
Sunday, Jan 5 @ 12:00 PM
BEARS
Sunday, Jan 12 @ 3:30 PM
Eagles
Recent Topics
30m / Green Bay Packers Talk / beast

11h / Green Bay Packers Talk / Zero2Cool

11-Mar / Green Bay Packers Talk / TheKanataThrilla

11-Mar / Green Bay Packers Talk / Mucky Tundra

11-Mar / Green Bay Packers Talk / Zero2Cool

10-Mar / Green Bay Packers Talk / beast

10-Mar / Green Bay Packers Talk / bboystyle

6-Mar / Green Bay Packers Talk / wpr

6-Mar / Green Bay Packers Talk / Martha Careful

4-Mar / Green Bay Packers Talk / wpr

4-Mar / Random Babble / Martha Careful

4-Mar / Random Babble / Martha Careful

3-Mar / Green Bay Packers Talk / Zero2Cool

3-Mar / Green Bay Packers Talk / dfosterf

1-Mar / Green Bay Packers Talk / wpr

Headlines
Copyright © 2006 - 2025 PackersHome.com™. All Rights Reserved.