04/26/10 Gaithersburg, Maryland – Fertilizer stocks are well off their highs and are down about 10% from the start of the year.
What’s happened here is that the global harvest of wheat, corn and soybeans looks like it is going to be a record. As improbable as it seemed only six months ago, this is what is happening. Plus, US corn stocks are starting to creep back up to 1980s levels.
That’s great news for avoiding another food crisis, but it’s not so great for investors in fertilizer stocks, at least for the short term. Over the long term, the same old challenges remain. We face a rising global population for which we will need to boost food production by 70% over the coming decades. We have a shifting global diet that demands more proteins, which has a great impact on the grain market. We have challenges with water scarcity and quality arable land.
So the longer-term picture looks attractive. The stocks themselves also have large net asset values (NAVs), based on replacement values.
These stocks are also incredibly volatile. The news can change in a hurry based on unexpected turns in weather, for example. Right now, the fertilizer companies can make good money at current prices, especially if volumes pick up as they should. Farmer income is still healthy. And demand for grains is there. So let’s hang onto our fertilizer plays and see how it unfolds.
Chris Mayer
for The Daily Reckoning
Chris Mayer
Chris Mayer is managing editor of the Capital and Crisis and Mayer’s Special Situations newsletters. Graduating magna cum laude with a degree in finance and an MBA from the University of Maryland, he began his business career as a corporate banker. Mayer left the banking industry after ten years and signed on with Agora Financial. His book, Invest Like a Dealmaker, Secrets of a Former Banking Insider, documents his ability to analyze macro issues and micro investment opportunities to produce an exceptional long-term track record of winning ideas. In April 2012 Chris will release his newest book World Right Side Up: Investing Across Six Continents.
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