Some investment opportunities go along for years being dull and unattractive until they are not. Such cases today are companies that produce the fertilizers needed to enhance food production and feed the populations of the world. A bit over a year ago, before the Ukraine invasion, we wrote about fertilizer companies as investments. Like all businesses, companies that produce fertilizers make greater profits when demand is higher and prices soar. Likewise, those who trade commodities can profit due to both decreased supply as well as increased demand. How to invest in fertilizer stocks can either be for the long term with low but predictable profits or for short term gains in situations like when Russia’s invasion of Ukraine upsets the commodity markets.
What Is Going on With Fertilizers?
Bloomberg writes about the stranglehold that Russia and China have on the world’s food supply. The issue is who produces the most fertilizers and who exports the most fertilizers. In both cases the answers are Russia and China. Why this is important has to do with the Green Revolution that started in the 1960s and continues to this day. Since the 1960s crop yields for rice, wheat, and other crops have increased by as much as three times what they used to be. This is because of new crop varieties that produce more and are often more resistant to pests and crop diseases. These new varieties all require more fertilizer in order to produce greater yields. Thus, agriculture throughout the world is more reliant on fertilizers than it once was.
The war in Ukraine has resulted in sanctions on Russia which, in many cases, has interfered with export of some of the fertilizers that are needed everywhere in the world. Countries that do not produce enough of their own fertilizers are paying premiums in order to fertilize their crops. Countries like Canada and the USA that produce more fertilizer than they need are still seeing higher fertilizer costs. Companies that produce fertilizers are making money.
Who Produces Fertilizers?
For investors interested in profiting from investments in fertilizer companies the best first place to look is the North American market. The top five companies in this market constitute eighty-six percent of the market. These companies are the following:
- CF Industries Holdings, Inc.
- Nutrien Ltd.
- The Mosaic Co.
- Wilbur-Ellis Company LLC
- Yara International ASA
The products of importance include urea which has a high nitrogen content and is easy to produce, transport, and store as well as easy to convert into the plant-usable form, ammonium ion. Field crops are the primary target in North America taking up 95% of North America’s total crop area. These field crops include corn, cotton, rice, sorghum, soybeans, winter wheat, durum wheat, and spring wheat. The fastest growing type of specialty fertilizer is called SRF. These are fertilizers that are safe for the environment and soil because they slowly and precisely release their nutrients throughout the growing season which reduce the typical leaching of nutrients seen with fertilizers.
The USA and Canada are ideal markets for fertilizer companies because they are dominant agricultural producers making it relatively easier to produce and ship fertilizers from North American sources to North American buyers.
Which Fertilizer Companies Should You Invest In?
Yahoo Finance ranks fertilizer companies starting with Mosaic. This stock traded in the $26 to $34 range from five years ago until it became clear that Russia would invade Ukraine. Then it shot up to $76.05 with the invasion and then fell to the $49.05 where it trades today. The stock pays a 1.6% dividend yield and has a P/E ratio of 4.87. Their second suggestion is Nutrien, which is the largest fertilizer company. This stock has a similar history to Mosaic. It traded in the $70 range until the Russian invasion of Ukraine, shot up to $141.34 and then settled into the $100.70 range where it trades today. This stock has a dividend yield of 2.82% and a P/E ratio of 5.82. Another suggestion of theirs is Corteva, a DuPont spinoff that is a seed and fertilizer business. This stock jumped up in price with the Ukraine invasion but did not fall back. It trades at $61.81 a share, has a 0.97% dividend yield, and a P/E ratio of 37.16.
What Happens to Fertilizer Stocks if a Peace Is Negotiated in Ukraine?
Pretty much every fertilizer stock is up because of the supply side disruptions caused by Russia’s invasion of Ukraine and subsequent sanctions. If the war comes to an early conclusion much of the supply side disruption in fertilizers will get resolved. What will happen then to fertilizer stocks? Prices will likely take a small hit but this is a growing market because the world population is growing and needs more food every year. New crop varieties are continually coming on line and these more-productive varieties generally need more fertilizer to realize their potential. The “war dividend” for fertilizer company stocks happened a year ago. Lord willing, it will not happen again with any more invasions or worsening of the Ukraine situation. As such fertilizer companies will be secure investments with slow, steady growth potential going forward.
How to Invest in Fertilizer Stocks – SlideShare Version