AG Fertilizer is a very high volatile market and not for those that hate risk. There are no 2 market periods that are exactly the same. But 2007/08 the Fertilizer market was one of the best performing asset classes before the Oct 2008 crash. The reason was a food crisis scare and a lot of liquidity in the market. Sound familiar? The biggest stock tickers here to look at are –
$NTR – Nutrien – $51B Market Cap – P/E 8.12. EPS $12.35 – Nutrien is the merger of Agrium and Potash Corporation of Saskatchewan in 2017. Nutrien is a Canadian fertilizer company based in Saskatoon, Saskatchewan. It is the largest producer of potash and the third largest producer of nitrogen fertilizer in the world.
$CF – CF Industries – $23B Market Cap -P/E 9.71, EPS $12.19. CF Industries manufactures and sells hydrogen and nitrogen products for energy, fertilizer, emissions abatement in the US, Canada, and UK. They recently hit ATH's as they closed down all UK production plants as Natural Gas used to make hydrogen and nitrogen fertilizers in the UK is too damn expensive compared to the US & Canada.
$MOS – Mosaic – $21B Market Cap – P/E 7.04, EPS $8.17. Mosaic mines phosphates in Florida, Brazil, and Peru, and sources the natural gas used for its production from Texas and Louisiana. Mosaic mines potash in Saskatchewan, New Mexico, and Brazil.
$IPI – Intrepid Potash – $714M Market Cap – P/E 2.67(Fwd P/E 7.02) EPS $21.70. Intrepid Potash has three potash mining and production facilities, one in New Mexico and two in Utah, and generates “substantially all” of its potash sales in the U.S.
There has been a lot of consolidation in this group the last 15 years. Nutrien merged Agrium and Potash. CF bought out Terra Nitrogen. All agriculture fertilizer can only support high prices if the grains market Corn and Wheat futures are high enough that farmers can afford their prices. So why do farmers use fertilizers?
A survey of U.S. crop production estimated that average corn yields would decline by 40 percent without nitrogen. Long-term studies in Oklahoma show a 40 percent wheat yield decline without regular N and P additions. A long-term study in Missouri found that 57 percent of the grain yield was attributable to fertilizer and lime additions, Similarly, long-term trials from Kansas show that 60 percent of the corn yield was attributable to fertilizer N and P. – Source Mosaic website. (N – Nitrogen; P- Phosphorus ).
$MOS hit 2008 ATH of $153. $CF 2008 ATH was $34. $IPI 2008 ATH was $676. $NTR was $POT and $AGR and is hard to calculate after the merger. These prices are all adjusted for stock splits and reverse stock splits. Important note on $IPI – they entered the stock market in 2008 and were definitely overvalued in 2008. Think SPACS for Tech in 2020/21.
Corn futures traded in a range of $5.30 – $7.32/bushel in 2008. The last 52 weeks have seen Corn futures trade b/w $4.97-$8.24/bushel. Fridays closing price for Corn is $6.65 on the Dec 2022 contract.
What did I learn from 2007-8? I owned $CF, $MOS, and what is now $NTR in 2007-08. We had a crop scare/food crisis due to floods in the Midwest (Illinois/Iowa). The prices of these stocks crashed like everything else in October 2008 and dropped by 70%. They rebounded like everything else in 2009 but didn't regain 50% of their ATH's until 2011.
In 2020/21 we have an energy and food crisis way worse than 2007/8 due to the Russian/Ukraine War. We are also seeing the signs of droughts in certain parts of the USA. However, we also do not have a financial crisis YET like we had in 2008 which devastated commodity prices. There is a lot of talk about demand destruction, and commodities could crash if there is no demand. And they are right. However Food & Energy is more inelastic for demand than Copper or Gold.
I am just a normal blue collar guy with a modest trading portfolio of approx $70k that works in the transportation industry. I was raised on a farm in the 80s & 90s so I have a very general idea of how agriculture industry worked 20 years ago. I do not give advise and I am fully prepared that I could be wrong and lose 50% of the value in $MOS and $IPI. I however think the potential upside is a 2x of the current stock prices in the next 52 weeks.
Disclosure – I own 112 shares of $MOS for a cost basis of $6,800 and 128 shares of $IPI at a cost basis of $6,564. I took profits and sold out of $MOS at $70 this summer 2022 for a 70% plus gain. I re-entered $MOS a little too early in June. These 2 stocks represent my 5th and 6th largest holdings. Again I am just a normal guy with a very modest portfolio and you all need to do your own due diligence. I plan to continue to add to these 2 positions or add either $CF or $NTR at a monthly DCA of $1k/month total. I am also long Oil stocks.
Good Luck.
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